Question

ework Help Save & Exit Check my As a long-term investment at the beginning of the 2021 fiscal year, Florists International purchased 25% of Nursery Supplies Inc.'s 8 million shares of capital stock for $40 million. The fair value and book value of the shares were the same at that time. The company realizes that this investment typically would be accounted for under the equity method, but instead chooses to measure the investment at fair value. During the year, Nursery Supplies reported net income of $20 million and distributed cash dividends of $1.00 per share. At the end of the year, the fair value of the shares is $36 million. Required: 1. How would this investment be classified on Florists' balance sheet? 2. 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. Complete this question by entering your answers in the tabs below. Required 1 Required 2 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. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions, (i.e10,000,000 should be entered as 10).) Show less View transaction list View journal entry worksheet < Prev 12 of 14 Next > earch Ote

Answer 1

1. Classifying the investments of Company Florists International

The investments, being recorded under the fair value method, the accounting for the held-to maturity securities would be similar to the accounting for trading securities. In the balance sheet of Company Florists International, the securities would be shown in the income statement in the corresponding period. However, the investments will be shown neither on the same line in the balance sheet due to equity method, or shown as a separate line due to fair value method.

2.

Calculate the Investment Revenue (Cash Dividend)
Investment Revenue   =	Number of shares Purchased * Cash Dividend per share * 25%
=	8,000,000*$1*25%
=	2,000,000

Calculation of the fair value adjustment balance needed on December 31, 2021
Particular	Amount ($)
Fair value adjustment balance as on January 1, 2021	40,000,000
Adjustment needed to update fair value (b/f)	4,000,000
Fair value adjustment balance neede on December31, 2021	36,000,000

No.	Event	Journal Entries	Debit	Credit
1	1	Investment in Nursery Supplies Shares	40,000,000
		Cash		40,000,000
2	2	No Journal Entry Required	-
				-
3	3	Cash	2,000,000
		Investment Revenue		2,000,000
4	4	Net Unrealized Holding Gains/Losses	4,000,000
		Fair value adjustment		4,000,000