Question

As a long-term investment at the beginning of the 2018 fiscal year, Florists International purchased 30% of Nursery Supplies Inc.'s 10 million shares for $58 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 $30 million and distributed cash dividends of $3.00 per share. At the end of the year, the fair value of the shares is $54 million.
Required:
Prepare the appropriate journal entries from the purchase through the end of the year.

Answer 1

Answer and Explanation:

The Journal entry is shown below:-

1. Investment in Nursery supplies shares Dr, $58 million

             To Cash $58 million

(Being purchase of shares is recorded)

2. Investment in Nursery supplies shares Dr, $9 million

            To Investment revenue $9 million ($30 million × 30%)

(Being investment revenue is recorded)

3. Cash Dr, $9 million

             To Investment in Nursery supplies shares $9 million

(30% × 10 million × $3.00)

(Being a  cash dividend is recorded)

4. No Journal entry is required