As a long-term investment at the beginning of the 2021 fiscal year, Florists International purchased 25% of Nursery Supplies Inc.'s 24 million shares for $71 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 $80 million and distributed cash dividends of $0.50 per share. At the end of the year, the fair value of the shares is $67 million.

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

Answer and Explanation:

The Journal entry is shown below:-

1. Investment in nursery supplies shares Dr,  $71 million

         To Cash $71 million

(Being the purchase through the end of the year is recorded)

2. Investment in nursery supplies shares Dr, $20 million

        To investment revenue $20 million

($80 million × 25%)

(Being investment is recorded)

3. Cash Dr, $3 million

         To  Investment in nursery supplies shares $3 million

(25% × 24 million × $0.50)

(Being the cash is recorded)

4. No journal entry is required

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