At a total cost of $6,700,000, Veravo Corporation acquired 238,000 shares of Strado Corp. common stock as a long-term investment. Veravo Corporation uses the equity method of accounting for this investment. Strado Corp. has 700,000 shares of common stock outstanding, including the shares acquired by Veravo Corporation.

Required:

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

1. Strado Corp. reports net income of $967,000 for the current period.

2. A cash dividend of $0.29 per common share is paid by Strado Corp. during the current period.

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