Investments in equity securities are often held by the owner for an indefinite period of time. As such, the asset is classified as available-for-sale and shown at fair value each period. Any changes in the reported amount is not included in net income but is rather listed within other accumulated comprehensive income in the stockholders’ equity section of the balance sheet. However, dividends received from the investment are reported as revenue and include in net income. When eventually sold, the difference between original cost and the proceeds received is reported as a gain or loss shown within net income. Because periodic changes in value are not factored into the calculation of net income, they are included in determining comprehensive income. Thus, both net income and comprehensive income are reported to allow decision makers to better understand the impact of these unrealized gains and losses.
Don't use plagiarized sources. Get Your Custom Essay on
Investments in Equity Securities
Just from $13/Page