As a long-term investment at the beginning of the 2021 fiscal year, Florists International purchased 20% of Nursery Supplies Inc.'s 10 million shares for $67 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 $60 million and distributed cash dividends of $1.50 per share. At the end of the year, the fair value of the shares is $63 million.

Question

Milagros Potter

Business

30 April, 10:23

As a long-term investment at the beginning of the 2021 fiscal year, Florists International purchased 20% of Nursery Supplies Inc.'s 10 million shares for $67 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 $60 million and distributed cash dividends of $1.50 per share. At the end of the year, the fair value of the shares is $63 million.

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Michael · Answer 1

Nursery Supplies at year-end 76,000,000

Gain on investment 12,000,000

Explanation:

Considering is considered a long-term investment for Florists International and the percentage of owership is significant we use equity method.

value of the investment at year end:

begining 67,000,000

income 60,000,000 x 20% = 12,000,000

cash dividends 10,000,000 shares x 1.5 x 20% = (3,000,000)

ending investment 76,000,000