Question

As a long-term investment at the beginning of the 2018 fiscal year, Florists International purchased 25% of Nursery Supplies Inc.'s 16 million shares for $59 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 $36 million and distributed cash dividends of $2.25 per share. At the end of the year, the fair value of the shares is $55 million.

Required:
a. Prepare the appropriate journal entries from the purchase through the end of the year.
b. Record the investment revenue in Nursery Supplies shares
c. Record the cash dividends received from Nursery Supplies shares

Answer 1

Answer: Please find answers in explanation column

Explanation:

To record investment  in Nursery Supplies

Account title and explanation                                Debit                 Credit

Investment in Nursery supplies common stock    $59 million

 Cash                                                                                                 $59 million

2. To record share in  net income by Nursery supplies

Account title and explanation                                Debit                 Credit

Investment in Nursery supplies common share   $9 million

Investment Revenue                                                                       $9 million

Calculation

25% x net income of $36 million   =$9 million

3.To record share in dividends received from Nursery Supplies

Account title and explanation                     Debit                       Credit

 Cash                                                             $9 million  

Investment in Nursery supplies common share                            $9 million

Calculation

16 million shares  x 25% x $2.25per share=$9 million