15-3.3 At a total cost of $6,460,000, Herrera Corporation acquired 187,000 shares of Tran Corp. common stock as a long-term investment. Herrera Corporation uses the equity method of accounting for this investment. Tran Corp. has 850,000 shares of common stock outstanding, including the shares acquired by Herrera Corporation.

Required:

A. the entries by Herrera Corporation on December 31 to record the following information (refer to the Chart of Accounts for exact wording of account titles):

1.Tran Corp. reports net income of $722,000 for the current period.

2.A cash dividend of $0.33 per common share is paid by Tran Corp. during the current period.

B.Why is the equity method appropriate for the Tran Corp. investment?

Herrera's investment in Tran Corp. represents of the outstanding shares of Tran Corp. An investment amount between and of the outstanding common stock of the investee is presumed to represent significant influence. The equity method is when the investor can exercise significant influence over the investee.