Why is the equity method appropriate for the larson corp

Question

At a total cost of $2,000,000, Stieg Corporation acquired 160,000 shares of Larson Corp. common stock as a long-term investment. Stieg Corporation uses the equity method of accounting for this investment. Larson Corp. has 400,000 shares of common stock outstanding, including the shares acquired by Stieg Corporation.

1. Journalize the entries by Stieg Corporation to record the following information:
2. Larson Corp. reports net income of $1,200,000 for the current period.
3. A cash dividend of $2.00 per common share is paid by Larson Corp. during the current period.
4. Why is the equity method appropriate for the Larson Corp. investment?