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Exercise 12-27 (Algo) Falr value optlon; equlty method Investments [LO12-6, 12-8] As a long-term investment at the beginning of the 2021 fiscal year, Florists International purchased 20% of Nursery Supplies Inc's 8 million shares of capital stock for $30 million. The falr 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 $1.25 per share. At the end of the year, the falr value of the shares is $25 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 falr value option, and In a manner simlar 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 2 Required 1 How would this investment be classified on Florists' balance sheet? Classification < Required 1 Required 2 >

Answer 1

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Naming convention in not available, can be slightly different: Answer is highlighted in yellow: Solution: 1) Classification Equity method securities or Significant influence investment Although, investment is elected to record as fair value investment. But classification will be still as equity method investment. 2) D Trans. Credit Debit 30 $ S 30 Journal entries Account title and explaination Investment in Nursery Supplies shares Cash (To record the purchase) Cash (8*20%) * 1.25 Investment Revenue (To record the dividends) Unrealized holding Loss - NI (30-25) Fair value adjustment (To record the fair value adjusting entry) $ 2