Let's break this down step by step:
1. **Record the Investment in Nursery Supplies shares at the beginning of the year**:
Florists International purchased 25% of Nursery Supplies Incorporated's 16 million shares for $74 million. This means Florists International acquired 25% of 16 million shares, which is 4 million shares.
The journal entry to record this investment is:
**Investment in Nursery Supplies Shares (Asset)**: Debit $74 million
**Cash (Asset)**: Credit $74 million
2. **Record the Investor's Share of Net Income**:
Nursery Supplies earned net income of $32 million during the year. Florists International owns 25% of Nursery Supplies, so its share of net income is 25% of $32 million, which is $8 million.
The journal entry to record this is:
**Investment in Nursery Supplies Shares (Asset)**: Debit $8 million
**Share of Net Income (Revenue)**: Credit $8 million
3. **Record the Cash Dividends Received from Nursery Supplies Shares**:
Nursery Supplies distributed cash dividends of $1.50 per share. Florists International owns 4 million shares, so its total dividends received are 4 million shares * $1.50, which is $6 million.
The journal entry to record this is:
**Cash (Asset)**: Debit $6 million
**Dividend Income (Revenue)**: Credit $6 million
4. **Record Fair Value Adjustment at Year-End**:
At the end of the year, the fair value of the shares is $70 million. Since the fair value decreased compared to the initial purchase price, a loss needs to be recognized. The decrease in fair value is $74 million (initial purchase price) - $70 million (year-end fair value), which is $4 million.
The journal entry to record this fair value adjustment is:
**Fair Value Adjustment (Loss) (Expense)**: Debit $4 million
**Investment in Nursery Supplies Shares (Asset)**: Credit $4 million
These journal entries reflect Florists International's transactions and adjustments related to its investment in Nursery Supplies shares during the fiscal year.