- This topic has 2 replies, 2 voices, and was last updated 3 weeks ago by SAM.
April 23, 2022 at 1:40 am #3311614dKParticipant
A firm's balances reflect the following amounts as of the close of the fiscal year:
Income from continuing operations: 450,000
Loss from discontinued operations: 76,000
Unrealized gain on trading securities: 21,000
Unrealized loss on available-for-sale securities: 28,000
Foreign currency translation gain: 35,000
Comprehensive income based on the number will be closest to:
Correct answer: A. Comprehensive income is equal to net income (which includes both income from continuing operations and the loss from discontinued operations) plus OCI (which includes unrealized loss on available-for-sale securities and the foreign currency translation gain). Comprehensive income is equal to 450,000 – 76,000 – 28,000 + 35,000 = 381,000.
I am a little confused as to why the unrealized gain on trading securities would not be included in comprehensive income. From my studying I remember that unrealized gain/loss from trading securities is included on the income statement. Would that not make it part of net income then? Any help will be really appreciated. Thanks!April 25, 2022 at 10:03 pm #3311683jmurdock21Participant
My understanding is that the reason is due to unrealized gains/losses being recorded differently based on whether they are held for trade, maturity, or for sale.
Securities held for trading are short term securities, so their unrealized gains or losses are already included in income from operations.
Someone can correct me if I’m wrong tho.May 1, 2022 at 12:05 am #3311794SAMGuest
The trading securities are investments like stocks or bonds that company intends to purchase and sell in order to make profit in the short term. So any unrealized gain/loss are reported in NI.
It's unrealized because: the securities have not been sold to realize the profits, and the transaction is not occurred yet on the paper. So the gain increases the net income.
Hope it make sense?