Answer and Explanation:
The journal entries are shown below:
1 Investment in Tran Corp $210,000
To Investment Income (280,000 ÷ 800,000 × $600,000) $210,000
(Being the investment in Tran corp. is recorded)
For recording this we debited the investment in tran corp as it increased the assets and credited the investment income as it also increased the revenue
2 Cash (280,000 × $0.50) $140,000
To Investment in Tran Corp $140,000
(Being the payment of cash dividend is recorded)
For recording this we debited the cash as it increased the assets and credited the investment in tran corp as it decreased the assets
(B) The equity method is appropriate as the Herrera owns 35% which come from
= $280,000 ÷ $800,000
= 35%
And it can be exercised when there is a significant influence or effect over the investor
