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At a total cost of $660,000, Penn Corporation acquired 60,000
shares of Teller Corp. common stock as a long term investment. Penn
Corporation uses the equity method of accounting for this
investment. Teller Corp. has 200,000 shares of common stock
outstanding, including the shares acquired by Penn
Corporation.
Journalize the entries by Penn Corporation to record the following
information:
a. Teller Corp. reports net income of $940,000 for the current
period.
b. A cash dividend of $2.50 per common share is paid by Teller
Corp. during the current period.
c. Why is the equity method appropriate for the Teller Corp.
investment?