57 MCQ ST OF COMP INCOME

Question 1

A company reported the following for the current year:

Retained earnings appropriated for plant expansion $32,500

Correction of understated depreciation expense from prior periods
9,300

Unrealized loss on available-for-sale debt securities
8,100

Unrealized gain on foreign currency translation
3,400

The company’s current-year net income was $86,500, and the company has a 30% effective income tax rate.

What amount of comprehensive income should be reported for the current year?

$76,700

$81,800

$40,000

$83,210

Question #302712

Answer 1

$83,210

Comprehensive income is net income +/− other comprehensive income (OCI) earned during the period. Items in other comprehensive income are reported net of tax. Comprehensive income is:

Net income − Unrealized loss (1 – Tax rate) + Unrealized gain (1 – Tax rate) = Comprehensive income
$86,500 − $8,100 (1 − 0.30) + $3,400 (1 − 0.30) = $83,210
Note: Retained earnings does not impact comprehensive income. Net income is closed to retain earnings at year-end. The correction of depreciation from prior periods would impact prior-period income and beginning retained earnings but would have no impact on current-year net income or OCI.

Relevant Terms
Comprehensive Income
Net Income
Other Comprehensive Income

Reference
2113.02

Question 2

A company reported the following information for Year 1:

Net income $34,000
Owner contribution 9,000
Deferred gain on an effective cash-
flow hedge 8,000
Foreign currency translation gain 2,000
Prior service cost not recognized in
net periodic pension cost 5,000
What is the amount of other comprehensive income for Year 1?

$43,000

$14,000

$15,000
$5,000

Question #301445

Answer 2

$5,000

Other comprehensive income includes items such as gains and losses on foreign currency transactions designated as hedges, gains and losses on derivative instruments, and gains or losses associated with pension or other postretirement benefits. Therefore, for this question the correct answer is $5,000:

Deferred gain on an effective cash-flow hedge ($8,000) + Foreign currency translation gain ($2,000) − Prior service cost not recognized in net periodic pension cost ($5,000) = $5,000

Relevant Terms
Comprehensive Income
Other Comprehensive Income
Prior Service Cost

Reference
2113.01
2113.02
2113.03

Authorities
FASB ASC 220-10-45-10A

Question 3

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?

$46,000

$57,000

$63,000

$29,000

Answer 3

$29,000

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
========

Question 4

A company reports the following information as of December 31:

Sales revenue $800,000
Cost of goods sold 600,000
Operating expenses 90,000
Unrealized holding gain on available-
for-sale debt securities, net of tax 30,000
What amount should the company report as comprehensive income as of December 31?

$110,000

$140,000

$200,000

$30,000

$140,000

Question #300111

Answer 4

$140,000

Other comprehensive income is computed as follows:

Sales revenue $800,000
Cost of goods sold 600,000
Gross profit $200,000
Operating expenses 90,000
Net income $110,000
Unrealized holding gain 30,000
Comprehensive income $140,000

Reference
2113.03

Authorities
FASB ASC 220-10-45-10A

Question 5

According to the FASB conceptual framework, comprehensive income includes which of the following?

Neither loss on discontinued operations nor investment by owners

Investment by owners

Both loss on discontinued operations and investment by owners

Loss on discontinued operations

Question #300037

Answer 5

Loss on discontinued operations

SFAC 6 defines comprehensive income as: “Change in equity (net assets) of an 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.”

Loss on discontinued operations is part of net income which changes equity; therefore, it is part of comprehensive income. By definition, investments by owners are specifically excluded from comprehensive income.

Reference
2113.01
2113.02

Authorities
SFAC 6.70

Question 6

Accumulated other comprehensive income is reported in which of the following financial statements?

The income statement

The statement of comprehensive income

The statement of cash flows

The statement of financial position

Question #301442

Answer 6

The statement of financial position

Other comprehensive income is transferred to accumulated other comprehensive income each period.

Accumulated other comprehensive income is reported as part of equity on the balance sheet/statement of financial position.

Term: Other Comprehensive Income
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

Reference
2113.03

Authorities
FASB ASC 220-10-45-14

Question 7

Albany Co. has net income of $39,000, $17,000 of prior service costs related to amendments implemented in their pension plan, a gain of $8,100 on the effective portion of a cash flow hedge, and an impairment loss of $6,000 on an intangible asset. What amount is Albany’s comprehensive income?

$22,000

$13,900

$47,100

$30,100

Question #302059

Answer 7

$30,100

Comprehensive income includes net income and other comprehensive income (OCI). OCI includes pension-related items like the implementation of prior service costs and gains and losses on the effective portion of cash flow hedges as well as unrealized holding gains or losses on available-for-sale debt securities. The impairment loss ($6,000) is already included in net income.

Net income $39,000
Prior service costs related to a pension plan (17,000)
Gain on effective portion of cash flow hedge 8,100
$30,100
=======
Note: Amortization of prior service costs would be recognized in pension expense and included in net income.

Relevant Terms
Comprehensive Income
Other Comprehensive Income
Statement of Earnings and Comprehensive Income

Reference
2113.01
2113.02
2113.03

Question 8

All of the following items should be included in accumulated other comprehensive income or loss except:

losses on debt securities (classified as available for sale) that are unrealized.

pension or postretirement gains or losses.

foreign currency translation gains or losses.

unrealized gains and losses from the ineffective portion of a derivative properly designated as a cash flow hedge.

Answer 8

unrealized gains and losses from the ineffective portion of a derivative properly designated as a cash flow hedge.

Accumulated other comprehensive income (AOCI) is a component of equity on the balance sheet, presented separately from retained earnings and additional paid-in-capital. Total items of other comprehensive income (OCI) are transferred to AOCI at the end of each reporting period. FASB defines OCI as “revenues, expenses, gains, and losses that under generally accepted accounting principles (GAAP) are included in comprehensive income but excluded from net income” (FASB ASC 220-10-20). These items have not yet been realized.

Some examples of OCI include the following:

• Foreign currency translation gains or losses
• Gains and losses (effective portion only) on derivative instruments that qualify as cash flow hedges
• Unrealized holding gains and losses on available-for-sale debt securities
• Pension or postretirement gains or losses (not recognized immediately as a component of net periodic benefit cost)
• Prior service costs or credits

Unrealized gains and losses from the ineffective portion of a derivative properly designated as a cash flow hedge are recognized immediately in income. Unrealized gains and losses on debt securities classified as AFS (available for sale) are reported in AOCI. Reduction of shareholders’ equity related to employee stock ownership plans is generally the result of an increase in a related liability, not income.

Question 9

At the end of the accounting period, the components of other comprehensive income are transferred to which of the following stockholders’ equity accounts?

Additional paid-in capital (common stock)

Treasury stock

Retained earnings

Accumulated other comprehensive income

Question #300097

Answer 9

Accumulated other comprehensive income

The total of other comprehensive income for a period is transferred to a component of equity that is presented in the statement of financial position separately from retained earnings and additional paid-in capital. This element of stockholders’ equity should carry an appropriate title, such as accumulated other comprehensive income. The accumulated balances of each separate classification of that component of stockholders’ equity is required, either in the statement of financial position or in notes to the financial statements. The classifications of other comprehensive income must be consistent throughout the financial statements.

Relevant Terms
Accounting Period
Additional Paid-in Capital
Other Comprehensive Income
Retained Earnings

Reference
2113.03

Authorities
FASB ASC 220-10-45-14

Question 10

Comprehensive income includes all of the following, except:

a gain on discontinued operations.

the sale of a machine that is fully depreciated.

payroll taxes.

investment in the company via the sale of common stock.

Question #302279

Answer 10

investment in the company via the sale of common stock.

Comprehensive income is defined in the FASB’s conceptual framework as “the change in equity (net assets) of a business enterprise, during a period, from transactions and other events and circumstances from nonowner sources.” Comprehensive income includes both net income items and other comprehensive items for a total called comprehensive income.

Investment in the company via the sale of common stock is an investment by owners and would therefore not be included in comprehensive income.

The other three answer choices (payroll taxes, the sale of a machine that is fully depreciated, and a gain on discontinued operations) would be included.

Term: Comprehensive Income
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 11

Comprehensive income includes all of the following, except:

revenues from external customers.

interest expense to bondholders.

loss from a tornado.

dividends to shareholders.

Question #300098

Answer 11

dividends to shareholders.

Comprehensive income is defined in the FASB’s conceptual framework as “the change in equity (net assets) of a business enterprise, during a period, from transactions and other events and circumstances from nonowner sources.”

Comprehensive income includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.

Dividends are a distribution to owners and would therefore not be included in comprehensive income. The other three answer choices (revenues from external customers, interest expense to bondholders, and loss from a tornado) would be included.

Term: Comprehensive Income
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

Relevant Terms
Comprehensive Income
Customer
Dividends

Reference
2113.02

Authorities
FASB ASC 220-10-20

Question 12

Dodd Co.’s debt securities at December 31 included available-for-sale securities with a cost basis of $24,000 and a fair value of $30,000. Dodd’s income tax rate was 20%. What amount of unrealized gain or loss should Dodd recognize in its income statement at December 31?

$4,800 gain

$6,000 loss

$6,000 gain

$0

Question #302586

Answer 12

$0

Available-for-sale debt securities are carried on the balance sheet at fair value.

Unrealized changes in fair value between periods are reported in other comprehensive income for the period.

Gains and losses are not reported on the income statement until realized.

Items in other comprehensive income are reported net of their effective tax.

Dodd would recognize $0 in gain on its income statement.

The unrealized gain in other comprehensive income is $4,800 ($6,000 gain × (1 – .20 tax rate)).

Reference: 2251.19

Available-for-sale (AFS) securities are carried on the balance sheet at fair value.

Unrealized gains and losses from changes in fair value are reported in Other Comprehensive Income (OCI) for the period. OCI is then added to (subtracted from) Accumulated Other Comprehensive Income (AOCI), which is shown as a separate component of stockholders’ equity until realized.

Unrealized gains or losses from sold securities are adjusted when the entire portfolio is evaluated for fair value at year-end, not on the date of sale.

Under FASB ASC 326, when the fair value of an AFS debt security is below its amortized cost and the decline in fair value below amortized cost is attributable to credit-related factors, an estimate of expected credit losses must be established. To recognize the credit-related loss, the company does not adjust the cost of the security or recognize the decline in OCI. Instead, the company recognizes the credit loss in earnings and subsequently increases an allowance for credit losses on the balance sheet. The loss can be reversed, and the related allowance can be reduced in subsequent periods if the expected loss decreases or conditions change.

Term: Available-for-Sale Debt Securities
Available-for-sale (AFS) debt securities are investments not classified as either trading securities or as held-to-maturity securities.

Reference: 2251.19
Available-for-sale (AFS) securities are carried on the balance sheet at fair value.

• Unrealized gains and losses from changes in fair value are reported in Other Comprehensive Income (OCI) for the period. OCI is then added to (subtracted from) Accumulated Other Comprehensive Income (AOCI), which is shown as a separate component of stockholders’ equity until realized.
• Unrealized gains or losses from sold securities are adjusted when the entire portfolio is evaluated for fair value at year-end, not on the date of sale.
• FASB ASC 326, when the fair value of an AFS debt security is below its amortized cost and the decline in fair value below amortized cost is attributable to credit-related factors, an estimate of expected credit losses must be established. To recognize the credit-related loss, the company does not adjust the cost of the security or recognize the decline in OCI. Instead, the company recognizes the credit loss in earnings and subsequently increases an allowance for credit losses on the balance sheet. The loss can be reversed, and the related allowance can be reduced in subsequent periods if the expected loss decreases or conditions change.

Relevant Terms
Available-for-Sale Debt Securities
Income Statement
Other Comprehensive Income

Reference
2251.19

Question 13

One of the elements of a financial statement is comprehensive income. Comprehensive income excludes changes in equity resulting from which of the following?

Unrealized loss on investments in equity securities

Loss from discontinued operations

Prior-period error correction

Dividends paid to stockholders

Question #300101

Answer 13

Dividends paid to stockholders

Comprehensive income per SFAC 6, Elements in Financial Statements, encompasses all changes in equity of a business resulting from transactions with nonowners. Specifically: “It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.”

Based on this, dividends paid to stockholders would not be included in computation of comprehensive income.

Relevant Terms
Comprehensive Income
Discontinued Operations
Holding Gain or Loss
Retroactive Recognition

Reference
2113.02
2113.03

Authorities
SFAC 6.70

Question 14

Palmyra Co. has net income of $11,000, a positive $1,000 net cumulative effect of a change in accounting principle, a $3,000 unrealized loss on available-for-sale debt securities, a positive $2,000 foreign currency translation adjustment, and a $6,000 increase in its common stock. What amount is Palmyra’s comprehensive income?

$4,000

$17,000

$11,000

$10,000

Question #300108

Answer 14

$10,000

Other comprehensive income includes foreign currency translation adjustments and unrealized holding gains or losses on available-for-sale debt securities. The change in accounting principle is an adjustment to retained earnings. The increase in common stock is not reflected in the income statement.

Net income
$11,000

Unrealized loss on available-for-sale debt securities
(3,000)

Foreign currency translation adjustment
2,000

Comprehensive income $10,000

Term: Available-for-Sale Debt Securities
Available-for-sale (AFS) debt securities are investments not classified as either trading securities or as held-to-maturity securities.

Relevant Terms
Available-for-Sale Debt Securities
Change in Accounting Principle
Comprehensive Income
Foreign Currency Translation
Holding Gain or Loss

Reference
2113.01
2113.02

Authorities
FASB ASC 220-10-45-10A
SFAC 6.70

Question 15

The FASB’s conceptual framework explains both financial and physical capital maintenance concepts. Which capital maintenance concept is applied to currently reported net income, and which is applied to comprehensive income?

• Financial capital is applied to currently reported net income; physical capital is applied to comprehensive income.
• Physical capital is applied to currently reported net income; financial capital is applied to comprehensive income.
• Physical capital is applied to both currently reported net income and comprehensive income.
• Financial capital is applied to both currently reported net income and comprehensive income.

Question #300025

Answer 15

Financial capital is applied to both currently reported net income and comprehensive income.

SFAC 6, Elements of Financial Statements, contains the following definitions:

• Capital maintenance concept: the recovery of cost; separation of return on capital from return of capital.
• Financial capital concept: The effects of price changes on assets held and liabilities owed are recognized as “holding gains and losses” and included in return on capital.
• Physical capital concept: The effect of price changes are recognized as “capital maintenance adjustments” as a separate element of equity and would not be included in return on capital.

SFAC 6 continues: “The financial capital concept is the traditional view and is generally the capital maintenance concept in present primary financial statements. Comprehensive income as defined in paragraph 70 is a return on financial capital.”

Thus, the financial capital maintenance approach is applied to both currently reported net income and comprehensive income.

Relevant Terms
Accounting Profit
Comprehensive Income
Conceptual Framework
Holding Gain or Loss

Reference
2113.02

Authorities
SFAC 6.72

Question 16

What is the amount of other comprehensive income for Year 1?

$15,000

$14,000

$43,000

$5,000

Question #301445

Answer 16

$5,000

Other comprehensive income includes items such as gains and losses on foreign currency transactions designated as hedges, gains and losses on derivative instruments, and gains or losses associated with pension or other postretirement benefits. Therefore, for this question the correct answer is $5,000:

• Deferred gain on an effective cash-flow hedge ($8,000) + Foreign currency translation gain ($2,000) − Prior service cost not recognized in net periodic pension cost ($5,000) = $5,000

Reference
2113.01
2113.02
2113.03

Authorities
FASB ASC 220-10-45-10A

Question 17

When a full set of general purpose financial statements are presented, comprehensive income and its components should:

• appear as a part of discontinued operations and cumulative effect of a change in accounting principle.
• appear in a supplemental schedule in the notes to the financial statements.
• be reported net of related income tax effect, in total and individually.
• be displayed in a financial statement that has the same prominence as other financial statements.

Question #300096

Answer 17

be displayed in a financial statement that has the same prominence as other financial statements.

The FASB requires that all items that are recognized as components of comprehensive income be reported in a financial statement that has the same prominence as other financial statements. However, the FASB does not prescribe a specific format for the display of such information.

Reference
2113.01
2113.02

Authorities
FASB ASC 220-10-45-7

Question 18

When a full set of general-purpose financial statements are presented, comprehensive income and its components should:

• appear as a part of discontinued operations, extraordinary items, and cumulative effect of a change in accounting principle.
• be reported net of related income tax effect, in total and individually.
• appear in a supplemental schedule in the notes to the financial statements.
• be displayed in a financial statement that has the same prominence as other financial statements.

Question #302508

Answer 18

be displayed in a financial statement that has the same prominence as other financial statements.

FASB ASC 220-10-45-8, Alternative Formats for Reporting Comprehensive Income, requires that all items that are recognized as components of comprehensive income be reported in a financial statement that has the same prominence as other financial statements. However, FASB ASC 220-10-45-8 does not prescribe a specific format for the display of such information.

Reference
2113.01
2113.02

Authorities
FASB ASC 220-10-45-8

Question 19

Which of the following amounts would the statement of comprehensive income report as other comprehensive income or loss?

$16,900 other comprehensive income

$28,100 other comprehensive loss

$11,000 other comprehensive income

$17,000 other comprehensive loss

Question #300107

Answer 19

$17,000 other comprehensive loss

Other comprehensive income includes items such as gains and losses on foreign currency transactions designated as hedges, gains and losses on derivative instruments, gains or losses associated with pension or other postretirement benefits, and unrealized holding gains or losses on available-for-sale debt securities ($17,000).

All of the other items presented in the problem are included in net income.

Term: Available-for-Sale Debt Securities
Available-for-sale (AFS) debt securities are investments not classified as either trading securities or as held-to-maturity securities.

Term: Holding Gain or Loss
A holding gain or loss is the net change in fair value of a security. The holding gain or loss does not include dividend or interest income recognized but not yet received, write-offs, or the allowance for credit losses.

FASB ASC Glossary

Relevant Terms
Available-for-Sale Debt Securities
Comprehensive Income
Holding Gain or Loss
Other Comprehensive Income

Reference
2113.03
2113.04

Authorities
FASB ASC 220-10-45-10A
SFAC 6.70

Question 20

Which of the following describes how comprehensive income should be reported?

• May be reported in a combined statement of income and comprehensive income or disclosed within a statement of stockholders’ equity; separate statements of comprehensive income are not permitted
• Must be reported in a separate statement, as part of a complete set of financial statements
• Should not be reported in the financial statements but should only be disclosed in the footnotes
• May be reported in a separate statement or in a combined statement of income and comprehensive income

Question #300102

Answer 20

May be reported in a separate statement or in a combined statement of income and comprehensive income

FASB ASC 220-10-45-1A states: “An entity reporting comprehensive income in a single continuous financial statement shall present its components in two sections, net income and other comprehensive income.” The financial statement should include a total net income amount and the components for that amount, total other comprehensive income amount and the components for that amount, and total comprehensive income.

Relevant Terms
Comprehensive Income

Reference
2113.04

Authorities
FASB ASC 220-10-45-1A

Question 21

Which of the following is a component of other comprehensive income?

An accrual of warranty liabilities

A decrease in the value of inventory

Unrealized gain or loss on investment in equity securities

Gain or losses on the effective portion of cash flow hedges

Question #302278

Answer 21

Gain or losses on the effective portion of cash flow hedges

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 of the following:

• All components of net income
• All components of other comprehensive income (OCI)
  Some items included in OCI are the following:
• Foreign currency translation adjustments
• Unrealized holding gains and losses that result from a debt security
• Prior service costs or credits associated with pension or other postretirement benefits
• Gains and losses on the effective portion of hedges designated as cash flow hedges

It is important to note that comprehensive income is a change amount and not a cumulative amount. The amounts reported as direct charges or credits in the equity section of a balance sheet are cumulative amounts, similar to the way that retained earnings is a cumulative amount. An accrual of warranty liabilities, a decrease in the value of inventory, and an unrealized gain or loss on an investment in equity securities are included in net income.

Relevant Terms
Foreign Currency Translation
Other Comprehensive Income

Reference
2113.03

Question 22

Which of the following items is included in accumulated other comprehensive income or loss?

Unrealized holding gains or losses on investments in equity securities

Unrealized gains and losses from the ineffective portion of a derivative properly designated as a cash flow hedge

A reduction of shareholders’ equity related to employee stock ownership plans

Prior service costs not previously recognized as a component of net periodic pension costs

Question #301724

Answer 22

Prior service costs not previously recognized as a component of net periodic pension costs

Accumulated other comprehensive income (AOCI) is a component of equity on the balance sheet, presented separately from retained earnings and additional paid-in-capital. Total items of other comprehensive income (OCI) are transferred to AOCI at the end of each reporting period. FASB defines OCI as “revenues, expenses, gains, and losses that under generally accepted accounting principles are included in comprehensive income but excluded from net income” (FASB ASC 220-10-20). These items have not yet been realized.

Some examples of OCI include the following:

• Foreign currency translation gains or losses
• Gains and losses (effective portion only) on derivative instruments that qualify as cash flow hedges
• Unrealized holding gains and losses on available-for-sale debt securities
• Pension or postretirement gains or losses (not recognized immediately as a component of net periodic benefit cost)
• Prior service costs or credits

Unrealized gains and losses from the ineffective portion of a derivative properly designated as a cash flow hedge and unrealized holding gains or losses on investments in equity securities are recognized immediately in income. A reduction of shareholders’ equity related to employee stock ownership plans is generally the result of an increase in a related liability, not income.

Term: Prior Service Cost
The prior service cost is the cost of retroactive benefits granted in a plan amendment (the initiation of a new plan or a change in the terms of an existing plan: an increase in benefits, including those attributed to service rendered in prior periods). It represents an increase in PBO at the date of the amendment. (FASB ASC 715-30-20)

The prior service cost represents a delayed recognition component of net periodic pension cost. The entire cost of retroactive benefits is not required to be recognized; rather, it is amortized by assigning an equal amount to each future period of service of each employee active at the date of the amendment who is expected to receive benefits under the plan or amortized straight-line over the average remaining service period of the employees expected to receive benefits.

See the glossary for additional terms

Relevant Terms
Debt Security
Equity
Holding Gain or Loss
Other Comprehensive Income
Prior Service Cost
Realization

Reference
2113.03

Authorities
FASB ASC 220-10-20
FASB ASC 220-10-45

Question 23

Which of the following items of stockholders’ equity can either be an increase or a decrease to total stockholders’ equity?

Preferred stock (with par value)

Paid-in capital in excess of par

Treasury stock

Accumulated other comprehensive income

Question #302057

Answer 23

Accumulated other comprehensive income

Accumulated other comprehensive income (AOCI) can either increase or decrease total stockholders’ equity because the elements of AOCI can be either cumulative gains or losses.

Paid-in capital in excess of par increases total stockholders’ equity. Treasury stock decreases total stockholders’ equity. Preferred stock (with par value) increases total stockholders’ equity.

Relevant Terms
Preferred Stock
Stockholders’ Equity
Treasury Stock

Reference
2113.03

Question 24

Which of the following items should be shown as a component of comprehensive income?

Deferred revenue

Additional capital contribution

Dividend paid to a shareholder

Foreign currency translation adjustment

Question #301667

Answer 24

Foreign currency translation adjustment

The FASB requires that various “gains” and “losses” be excluded from the income statement and reported as direct charges or credits to equity; these items are included in comprehensive income, which includes all changes in equity during a period except those resulting from investments (i.e., additional capital contributions) by owners and distributions (i.e., dividends) to owners. Deferred revenue is a liability and would not be reflected in equity until earned. The only item listed that should be shown as a component of comprehensive income is a foreign currency translation adjustment.

Relevant Terms
Capital Contributions
Comprehensive Income
Deferred Revenue
Dividends
Foreign Currency
Foreign Currency Translation

Reference
2113.01
2113.02

Authorities
SFAC 6.70

Question 25

Which of the following statements is correct regarding reporting comprehensive income?

• Comprehensive income must include all changes in stockholders’ equity for the period.
• A separate statement of comprehensive income is required.
• Comprehensive income is reported in the year-end statements but not in the interim statements.
• Accumulated other comprehensive income is reported in the stockholders’ equity section of the balance sheet.

Question #300110

Answer 25

Accumulated other comprehensive income is reported in the stockholders’ equity section of the balance sheet.

FASB ASC 220-10-45-14 requires that accumulated other comprehensive income be reported in the stockholders’ equity section of the balance sheet: “The total of other comprehensive income for a period shall be transferred to a component of equity that is presented separately from retained earnings and additional paid-in capital in a statement of financial position at the end of an accounting period. A descriptive title such as accumulated other comprehensive income shall be used for that component of equity.”

Term: Statement of Earnings and Comprehensive Income
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

Relevant Terms
Interim Financial Information
Other Comprehensive Income
Statement of Earnings and Comprehensive Income

Reference
2113.03

Authorities
FASB ASC 220-10-45