On January 2,2014,Nora Co.acquired 2,000 shares of Stonewall Co.common stock for $8,000 and classified these shares as available-for-sale securities.During 2014,Nora received $6,000 of cash dividends.Nora's share of Stonewall's 2014 earnings (net income)was $5,000.The fair value of Stonewall's stock on December 31,2014,was $7 per share.Nora should report what amount in 2014 related to Stonewall Co.?

Question

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CFor available-for-sale securities, dividends received are recognized as revenue, hence the $6,000 in cash dividends received by Nora Co. from Stonewall Co. is recognized as revenue. The share of Stonewall's earnings (net income) is not recognized in income for available-for-sale securities; instead, changes in fair value are recorded in other comprehensive income and reflected in the equity section of the balance sheet. The fair value of the investment at the end of the year is 2,000 shares * $7/share = $14,000, which is a decrease of $1,000 from the original cost of $8,000. This decrease is recognized as a decrease in the investment account, not as a loss in the income statement.