Question

As a long-term investment at the beginning of the 2021 fiscal year, Florists International purchased 20% of Nursery Supplies Inc.'s 20 million shares for $69 million. The fair value and book value of the shares were the same at that time. During the year, Nursery Supplies earned net income of $40 million and distributed cash dividends of $1.50 per share. At the end of the year, the fair value of the shares is $65 million.

Required:
Prepare the appropriate journal entries from the purchase through the end of the year.

Answer 1

Date Account title and Explanation Debit Credit

Investment in nursery supplies share $69 million

Cash $69 million

(To record equity investment)

Investment in nursery supplies share $8 million

(40 million*20%)

Investment revenue $8 million

(To record share in net income reported by N' supplies)

Cash $7.5 million

(20 million*25%*1.50)

Investment in nursery supplies share $7.5 million

(To record share in dividend received from N' supplies)