Stmt of Comp Income

Question 1

Background:

• 1. definition: comprehensive income is the sum of _______ and _____________. CI = NI + OCI.
• 2. OCI items are included in ________ but not in the income statement. OCI items are recorded in AOCI in the balance sheet.
• 3. The new standard, ASU Topic 220, has aligned the U.S. GAAP presentation of Comprehensive Income with ____.
• 4. two forms of reporting comp income:
     * single statement - as part of _________, called single statement of net income and comp income.
     * two statements - as a separate statement of _______. Two separate statements: a statement of net income and a statement of comp income. The net income amount resulting from income statement is used as the beginning amount for the statement of comp income, which then reports the other comp income items leading to comp income.
     * NOTE - companies choosing the two-statement approach have the option to begin the statement of comp income with or without net income.
• 5. the purpose of reporting comp income:
     * to summarize changes in _____ from _____ sources, i.e., transactions other than investments by owners and distributions to owners.
     * NOTE - does comp income include all non-owner changes in owners’ equity?
     * to provide a more complete picture of the total earnings of the firm for a period. This reporting contributes to the objective of reporting an “______” income amount.
     * NOTE - net income is not replaced by comp income.
• 6. OCI items are typically reported ______. Alternatively, firms may report each item on a pretax basis with the net aggregate income tax effect reported as a separate item.

Answer 1

• 1. net income; other comprehensive income
• 2. the statement of comp income
• 3. IFRS
• 4.
  
  • income statement
  • comp income
• 5.
  
  • equity; non-owner
  • NOTE - NO. comp income includes most but not all non-owner changes in equity. Retrospective changes in accounting principles and PPA are non-owner changes in equity. They affect equity but they don’t go to comp income. Instead, they are recorded as an adjustment to the beginning balance of RE.
  • all-inclusive
  • NOTE - none
• 6. net of tax

Question 2

Accumulated Other Comprehensive Income (AOCI):

• 1. AOCI goes to the ________. It is an _______ account.
• 2. AOCI is the amount of ______ carried over from the previous period, and then either increased or decreased during the current period.
• 3. U.S. GAAP requires that the total of OCI be separately displayed in the OE section of the balance sheet in the account called _______.
• 4. the accumulated balances of each item of OCI must be reported. This information can appear in the balance sheet, statement of owners’ equity, or footnotes. This disclosure allows the user to understand the changes in individual components of other comprehensive income.
• 5. NI is closed to ___. OCI is closed to ____ each year. Both RE and AOCI are ___ accounts.

Answer 2

• 1. balance sheet; OE
• 2. OCI items
• 3. AOCI
• 4. none
• 5. RE; AOCI; OE

Question 3

Reclassification adjustments of OCI items:

• An item recognized in OCI one year may be recognized in ________ in a later year. To avoid double counting in OE, the OCI item from the previous year is removed from _____. This is called a r______ a______.
• Companies must disclose the reclassification adjustments and the effect of the reclassification adjustment on ___ and _____.
• Example:
  
  • A firm recognizes a $5,000 unrealized gain on an AFS investment in year 1 OCI. In year 2, the AFS investment is sold for a $5,000 gain (recognized in net income causing retained earnings to increase by $5,000). At the end of year 2, the $5,000 unrealized gain from year 1 in AOCI is removed by reducing AOCI by $5,000 (the reclassification adjustment). The gain in OCI is “reclassified” as a gain recognized in net income. Without the reclassification adjustment, total OE would count the $5,000 twice.
• Reclassification adjustments are reported in ___.

Answer 3

• net income; AOCI; reclassification adjustment.
• NI; OCI.
• the footnotes.

Question 4

CPAexcel flash cards:

• 1. What type of account is AOCI?
• 2. What is NI plus or minus OCI?
• 3. What is OCI reclassification adjustment?

Answer 4

• 1. balance sheet > OE
• 2. comp income
• 3. When an OCI item from previous year is removed from AOCI and is reclassified to NI.