Question: As a long term investment at the beginning of the fiscal year

As a long-term investment at the beginning of the fiscal year, Florists International purchased 30% of Nursery Supplies Inc.'s 8 million shares for $56 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 the fair value option. During the year, Nursery Supplies earned net income of $40 million and distributed cash dividends of $1.25 per share. At the end of the year, the fair value of the shares is $52 million.

1. Would this investment be classified on Florists' balance sheet as held-to-maturity securities, trading securities, available-for-sale securities, significant-influence investments, or other? Explain.
2. Prepare all appropriate journal entries related to the investment during 2011.
3. Indicate the effect of this investment on 2011 income before taxes.

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  • CreatedJuly 02, 2013
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