Answer:
a. How would this investment be classified on Florists' balance sheet?
Florists International must use the equity method since it exercises significant influence over Nursery Supplies. This investment must be reported under non-current assets as Investment in Nursery Supplies.
Dr Investment in Nursery Supplies 60,000,000
Cr Cash 60,000,000
Dr Cash 12,000,000
Cr Investment in Nursery Supplies 12,000,000
Dr Investment in Nursery Supplies 21,000,000
Cr investment revenue 21,000,000
b. Prepare all appropriate journal entries related to the investment during 2021, under the fair value option, and in a manner similar to what Florists would use for investments in equity securities for which it does not have significant influence.
Dr Investment in Nursery Supplies 60,000,000
Cr Cash 60,000,000
Dr Cash 12,000,000
Cr Dividend revenue 12,000,000
Dr Loss on held for trading securities 4,000,000
Cr Investment in Nursery Supplies 4,000,000
