Question

Comprehensive Income due 0218

7 points maximum for excellent work

default grade B or 6 points for good work

1. What are the two formats that companies can use to present their Statement of Comprehensive Income? 0.3 pts

2. Choose two companies and get their annual reports.

3. For each company, obtain the balance sheet, income statement, and statement of comprehensive income. Put only these pages in a PDF document (or two) and highlight the accounts and other fields (company names and dates) listed in the attached spreadsheet unto the PDF financial statements (for example, net income on the income statement). (2 points, max half credit if not highlighted; penalty if you attach the entire annual report). Please attach. I will accept attachment in Word, but I prefer a separate file submitted alongside this Word file.

4. Complete the cells in the spreadsheet provided (or copy and paste below). Dollar amounts must be formatted properly (for example 1,000; not 1000). Also, you must present both companies using the same dollar scale. For example, you cannot present one company in thousands and the other in millions. You can choose any scale, but both companies must be presented in and/or converted into the same scale. (3.2 pts)

Copy and paste if you prefer to combine the spreadsheet and the Word file.

5. Explain the difference between comprehensive income and other comprehensive income. (1/2 pt)

6. What is the relationship between accumulated other comprehensive income (AOCI) and other comprehensive income? Hint: calculate the difference between beginning and ending AOCI. (1/2 pt)

7. In what way is AOCI similar retained earnings, besides the fact that they are both equity accounts? (1/2 pt)

Answer 1

1. Statement of Comprehensive Income (Statement of Profit and Loss and Others Comprehensive Income) could be prepared and presented into two different formats that allowed by IASB presentation of financial statements.

The single-step income statement

The first format that allows by IASB is single-step income statements. This kind of format required to report and present revenue and expenses into different sections regardless of realize or unrealized.

That means all kinds of revenues are recorded in the revenue sections no mater those revenues are realized or not.

For example, sales revenues, gain on interest income, and gain on revaluation are records in the revenue sections.

Multiple-step income statement

The second format of Statement of Comprehensive Income is the multiple-step of the income statement. This format divided the statement into two different types. One is operation profit and the second one is non-operation profit.

The operating profit results from operation revenue fewer operating expenses. As an operation profit, non-operation profit results in non-operation revenue less non-operation expenses.

5. Other Comprehensive Income vs Comprehensive Income

In financial accounting, corporate income can be broken down in a multitude of ways, and firms have some latitude on how and when to recognize and report their earnings. To compensate for this, the Financial Accounting Standards Board (FASB) has firms collect and report information using certain universally recognized measurements to help provide perspective for investors and analysts and report them on financial statements. Two such measurements are comprehensive income and other comprehensive income. Let us examine how they differ.

Other Comprehensive Income

We will start with other comprehensive income (OCI), for reasons that will become clear later on. Also known as comprehensive earnings, this is a catch-all classification for the items that cannot be included in typical profit and loss calculations because they do not stem from the company's regular business activities and operations. Hence, they have to bypass the company's net income statement—the sum of recognized revenues minus the sum of recognized expenses—which does include changes in owner equity.

More specifically, other comprehensive income charts the change in a company's net assets from non-owner sources over a certain time period, including all revenues and expenses that have not yet been realized, such as a capital gain or loss from an investment that has not yet been sold. (Once the gain or loss is realized, the amount is reclassified to net income.) Other examples of the types of changes captured by other comprehensive income include:

• Gains and losses from derivative instruments
• Unrealized gains and losses from debt securities
• Pension or other retirement plan gains and losses
• Foreign currency transactions
• Available-for-sale securities unrealized gains and losses

Comprehensive Income

Comprehensive income (CI), is more of an umbrella term—and in fact, an umbrella statement. Usually, it appears within the stockholders' equity section of a financial report or balance sheet. The comprehensive income consists of two sections:

• The net income from the income statement
• The net income from the other comprehensive income statement

The sum total of comprehensive income, also known as accumulated other comprehensive income, is calculated by adding net income to other comprehensive income.

6. Relationship between OCI and AOCI

• Accumulated other comprehensive income (AOCI) accumulates other comprehensive income (OCI), which records unrealized and realized gains and losses from certain transactions. Unrealized means paper gains and losses, which are usually not part of the net income calculation for a small business.
• Accumulated other comprehensive income is part of the shareholders' equity section of the balance sheet, while other comprehensive income and net income are part of the income statement.
• Other comprehensive income items include unrealized gains and losses from currency translations, changes in the market value of investment securities, and unrealized gains and losses in derivative instruments. Small businesses may report these items net of taxes.
• For example, if a company's currency translation gains are $10,000 and the tax rate is 15 percent, the net currency translation gains are $8,500 [$10,000 multiplied by (1 minus 0.15)]. If the company incurs $5,000 in after-tax unrealized losses on investment securities, the other comprehensive income is $3,500 ($8,500 minus $5,000).
• Accumulated other comprehensive income is usually shown below retained earnings -- which accumulates net income -- in the shareholders' equity section of the balance sheet.
• The beginning balance in accumulated other comprehensive income plus the other comprehensive income recorded during the period equals the ending accumulated other comprehensive income.
• Continuing with the example, if the accumulated other comprehensive income balance at the beginning of the year is $20,000, the ending balance for the year is $23,500 ($20,000 plus $3,500). If the other comprehensive income is a negative amount, meaning that it is actually a loss, then the ending balance in accumulated other comprehensive income is the beginning balance minus the other comprehensive income.

7. Way in which AOCI is similar to retained earnings

The balance of AOCI is presented in the Equity section of the Balance Sheet as is the balance of Retained Earnings , which aggregates past and current Earnings, and past and current Dividends.