On January 2, 2012, Howdy Doody Corporation purchased 17% of Ranger Corporation\

Question

On January 2, 2012, Howdy Doody Corporation purchased 17% of Ranger Corporation's common stock for $54,000 and classified the investment as available for sale. Ranger's net income for the years ended December 31, 2012 and 2013, were $19,000 and $54,000, respectively. During 2013, Ranger declared and paid a dividend of $63,500. There were no dividends in 2012. On December 31, 2012, the fair value of the Ranger stock owned by Howdy Doody had increased to $66,000. How much should Howdy Doody show in the 2013 income statement as income from this investment $10,795. $12,000. $22,795. $18,000.

Explanation / Answer

However, for available-for-sale securities the changes in value go into a special account, which is called "unrealized gain/loss in other comprehensive income", which is located in stockholders' equity. The income statement will be unaffected.

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