Entries for equity investments: 20%50% ownership

At a total cost of $912,800, Herrera Corporation acquired 56,000 shares of Tran Corp. common stock as a long-term investment. Tran Corp. has 200,000 shares of common stock outstanding, including the shares acquired by Herrera Corporation.

a. Journalize the entries by Herrera Corporation to record the following information: If an amount box does not require an entry, leave it blank.

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1. Tran Corp. reports net income of $1,640,000 for the current period.

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2. A cash dividend of $1.70 per common share is paid by Tran Corp. during the current period.

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

An investment amount [between 20% and 50%of 28% or less] of the outstanding common stock of the investee is presumed to represent significant influence. The equity method is appropriate when the investor [cancannot] exercise significant influence over the investee