Report Comprehensive Income
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CPA Financial Accounting and Reporting (FAR) › Report Comprehensive Income
Under ASC 220, which of the following is included in other comprehensive income (OCI)?
Gains on the sale of available-for-sale securities.
Unrealized gains and losses on available-for-sale debt securities.
Unrealized gains on trading securities.
Dividends received on equity method investments.
Explanation
OCI includes unrealized gains and losses on available-for-sale (AFS) debt securities under ASC 320. Answer B is correct. Unrealized gains on trading securities (A) are recognized in net income, not OCI. Gains on the sale of AFS securities (C) are realized and reclassified from OCI into net income upon sale - they are no longer an OCI item at that point. Dividends from equity method investments (D) are recognized in net income.
Under ASC 220, comprehensive income may be presented in which of the following formats?
Only as a single continuous statement combining net income and OCI.
As a single continuous statement of comprehensive income, or as two consecutive statements (income statement followed by a statement of OCI).
Only within the statement of changes in stockholders' equity.
At management's discretion, in any section of the financial statements.
Explanation
ASC 220 allows two presentation options: (1) a single continuous statement of comprehensive income, or (2) two consecutive statements - a statement of net income followed immediately by a statement of OCI. Answer A is correct. Presentation only in the equity section (C) was eliminated by ASU 2011-05. Answer B and D do not correctly describe all permitted options.
A company has net income of $500,000 and the following OCI items: unrealized gain on AFS securities $30,000, foreign currency translation loss $15,000, and pension liability adjustment (loss) $20,000. All amounts are pretax at a 25% tax rate. What is comprehensive income?
$496,250
$503,750
$495,000
$500,000
Explanation
OCI items net of tax: AFS gain = $30,000 x 75% = $22,500. Translation loss = $15,000 x 75% = ($11,250). Pension loss = $20,000 x 75% = ($15,000). Net OCI = $22,500 - $11,250 - $15,000 = ($3,750). Comprehensive income = $500,000 - $3,750 = $496,250. Answer B is correct. Answer A uses pretax OCI. Answer C ignores OCI entirely. Answer D adds OCI instead of subtracting the net loss.
Accumulated other comprehensive income (AOCI) is reported on the balance sheet as:
A current liability when it has a debit balance.
A component of retained earnings.
A separate component of stockholders' equity.
An intangible asset when it arises from pension adjustments.
Explanation
AOCI is a separate component of stockholders' equity on the balance sheet, distinct from paid-in capital and retained earnings. It accumulates the cumulative after-tax effect of all OCI items. Answer C is correct. A debit balance in AOCI (A) reduces stockholders' equity but is still classified within equity, not as a liability. AOCI is not part of retained earnings (B). Pension-related AOCI (D) is an equity component, not an intangible asset.
Which of the following pension-related items is reported in other comprehensive income rather than net periodic pension cost?
Expected return on plan assets.
Service cost.
Actuarial gains and losses arising in the period.
Interest cost on the projected benefit obligation.
Explanation
Under ASC 715, actuarial gains and losses arising in the current period are initially recognized in OCI and subsequently amortized into net periodic pension cost over time using the corridor approach (or immediate recognition). Answer D is correct. Service cost (A), interest cost (B), and expected return on plan assets (C) are all components of net periodic pension cost recognized in the income statement.
A company reports: net income $300,000; unrealized loss on AFS debt securities ($18,000) net of tax; pension liability adjustment ($12,000) net of tax; foreign currency translation gain $8,000 net of tax. What is comprehensive income?
$278,000
$308,000
$300,000
$322,000
Explanation
OCI = ($18,000) + ($12,000) + $8,000 = ($22,000). Comprehensive income = $300,000 + ($22,000) = $278,000. Answer C is correct. Answer A adds OCI as a positive amount. Answer B ignores OCI entirely. Answer D counts only the translation gain in OCI.
Which of the following correctly describes the tax effect of OCI items under ASC 220?
OCI items are always presented on a net-of-tax basis individually.
OCI items may be presented either on a pretax basis with one aggregate tax effect, or net of tax individually, as long as the presentation is consistent.
OCI items are always presented on a pretax basis with a single aggregate tax effect shown.
No tax effect is reported for OCI items; all taxes are shown in the income tax expense line.
Explanation
ASC 220 permits two acceptable tax presentation methods for OCI: (1) display each OCI component on a pretax basis and show the aggregate income tax effect as a single amount, or (2) display each OCI component net of its individual tax effect. Either approach is acceptable as long as it is applied consistently. Answer B is correct. Answer A mandates pretax with aggregate tax only, excluding the net-of-tax option. Answer C mandates net-of-tax individually, which is only one of the two permitted approaches. Answer D omits tax effects from OCI entirely, which is not permitted.
A prior service cost arises when a company amends its defined benefit pension plan to increase benefits. Under ASC 715, how is prior service cost initially recognized?
Recognized in OCI and subsequently amortized into net periodic pension cost over the remaining service period of affected employees.
Immediately in net income as pension expense in the period of the amendment.
Capitalized as an intangible pension asset on the balance sheet.
Charged directly to retained earnings as a prior period adjustment.
Explanation
Under ASC 715, prior service cost from a plan amendment is initially recognized in OCI (increasing AOCI as a debit balance) and then amortized into net periodic pension cost on a straight-line basis over the average remaining service period of active employees expected to receive the benefit. Answer D is correct. Answer A immediately expenses it, which is not the standard treatment. Answer B capitalizes it as an asset. Answer C charges retained earnings directly, bypassing the income statement and OCI.
A company presents a single continuous statement of comprehensive income. Which of the following is the correct ordering of line items?
Comprehensive income total, then a breakdown of net income and OCI.
Net income is shown first, followed by a separate statement for OCI items.
OCI items, then net income, then comprehensive income total.
Revenues and expenses leading to net income, followed by OCI items, then a total for comprehensive income.
Explanation
In a single continuous statement, revenues and expenses are presented first, resulting in net income. OCI components are then presented below net income, culminating in total comprehensive income. Answer C is correct. Answer A places OCI before net income, reversing the order. Answer B starts with the total. Answer D describes the two-statement approach, not the single continuous statement.
Under ASC 220, items of other comprehensive income are displayed:
Aggregated into a single OCI line item with no breakdown required.
Net of reclassification adjustments for items reclassified to net income during the period.
Gross, with reclassification adjustments presented in a separate section.
Without reclassification adjustments, which are disclosed only in the notes.
Explanation
ASC 220 requires that OCI components be shown net of reclassification adjustments - the amounts reclassified out of AOCI into net income are presented alongside new OCI activity so that the net change in AOCI is clear. Answer A is correct. Answer B presents gross amounts separately from reclassifications. Answer C moves reclassification disclosure to notes only. Answer D aggregates all OCI without breakdown, which is not sufficient disclosure.