302277 Other comprehensive income (OCI) i

Question 1

A company reports the following information as of December 31:

Sales revenue $472,000
Cost of goods sold 343,000
Operating expenses 83,000
Loss associated with pension
benefits, net of tax 17,000
What amount should the company report as comprehensive income, ignoring the effect of taxes, as of December 31?

$29,000

$57,000

$63,000

$46,000

Answer 1

Comprehensive income is the sum of net income and other items that must bypass the income statement because they have not been realized, including net unrealized holding gains or losses from available-for-sale debt securities, foreign currency translation gains or losses, gains and losses from and amendments to postretirement plans, and deferred gains and losses on derivatives.

Comprehensive income is computed as follows:

Sales revenue $472,000
Cost of goods sold 343,000
Gross profit $129,000
Operating expenses 83,000
Net income $ 46,000
Pension benefits loss, net of tax 17,000
Comprehensive income $ 29,000
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Question 2

Comprehensive Income

Answer 2

Comprehensive income is the change in equity (net assets) of a business entity during a period from transactions and other events and circumstances from nonowner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Comprehensive income comprises both (1) all components of net income and (2) all components of other comprehensive income.

FASB ASC Glossary

Question 3

Other Comprehensive Income

Answer 3

Other comprehensive income includes revenues, expenses, gains, and losses that, in accordance with generally accepted accounting principles, are included in comprehensive income but excluded from net income.

FASB ASC 220-10-20

Question 4

Statement of Earnings and Comprehensive Income

Answer 4

Statements of earnings and comprehensive income together indicate the extent to which and the ways in which the equity of the entity increased or decreased from all sources other than transactions with owners during the period. They provide information about the causes of changes in assets and liabilities, including the results of ongoing major or central operations, the results of incidental or peripheral transactions, and the effects of other events and circumstances stemming from the environment.

SFAC 5.30

Question 5

2113.03

Answer 5

Other comprehensive income (OCI) is defined as revenues, expenses, gains, and losses that under GAAP are included in comprehensive income but excluded from net income. The following items should be reported as direct charges or credits to equity; thus, the items that currently constitute other comprehensive income include the following:

• Foreign currency translation adjustments
• Gains and losses on foreign currency transactions that are designated as, and are effective as, economic hedges of a net investment in a foreign entity, commencing as of the designation date
• Gains and losses on intra-entity foreign currency transactions that are of a long-term-investment nature (that is, settlement is not planned or anticipated in the foreseeable future), when the entities to the transaction are consolidated, combined, or accounted for by the equity method in the reporting entity’s financial statements
• Gains and losses on derivative instruments that are designated as, and qualify as, cash flow hedges
• For derivatives that are designated in qualifying hedging relationships, the difference between changes in fair value of the excluded components and the initial value of the excluded components recognized in earnings under a systematic and rational method
• Unrealized holding gains and losses on available-for-sale debt securities
  Unrealized holding gains and losses that result from a debt security being transferred into the available-for-sale from the held-to-maturity category
• Amounts recognized in other comprehensive income for debt securities classified as available-for-sale and held-to-maturity related to an other-than-temporary impairment recognized if a portion of the impairment was not recognized in earnings
• Subsequent decreases (if not an other-than-temporary impairment) or increases in the fair value of the available-for-sale debt securities previously written down as impaired
• Gains or losses associated with pension or other postretirement benefits (that are not recognized immediately as a component of net periodic benefit cost)
• Prior service costs or credits associated with pension or other postretirement benefits
• Transition assets or obligations associated with pension or other postretirement benefits (that are not recognized immediately as a component of net periodic benefit cost)
• Changes in fair value attributable to instrument-specific credit risk liabilities for which the fair value option is elected