Net Income & Comprehensive Income Question

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  • #177659

    Here is one question from the 2013 released question. Can anyone help explain how the answer came out to be $10,000?

    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 securities, a positive $2,000 foreign currency translation adjustment, and a $6,000 increase in its common stock. What amount is Co.’ comprehensive income?

    NI 11,000

    +unrealized loss on AFS 3,000 (OCI)

    +foreign currency translation adjustment 2,000 (OCI)

    =$16,000

    -$6,000 increase in common stock

    =$10,000

    If so, why is the increase in common stock subtracted from NI+OCI to get to CI?

    And “positive $1,000 net cumulative effect of a change in accounting principle” is ignored because the retrospective change affects the Retained earnings and not CI?

    Thanks.

Viewing 9 replies - 1 through 9 (of 9 total)
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  • #418384

    I think this is the answer.

    NI 11,000 – unrealized loss 3000 + foreign currency translation adjustment 2000 = 10,000. The other items are not part of Comprehensive Income.

    #418385
    kevlee
    Member

    ^^ is right.

    NI + OCI = CI

    NI 11,000

    -3000 unrealized loss on AFS (OCI)

    +2000 foreign currency translation adj (OCI)

    = 10,000

    the 1000 change in acc principle is an retrospective change which would be reflected in the retained earnings

    the 6000 increase in C/S has nothing to do with CI.

    also remember that unrealized G/L on Trading Securities would be recognized in the I/S and not OCI (wouldnt make a difference in this example).

    Hope this helps!

    #418386
    sharp315
    Member

    Comprehensive income includes all changes to Equity aside from changes in ownership (common stock being ownership).

    BEC: PASS
    AUD: PASS
    FAR: PASS
    REG: PASS

    #418387

    That's one of those questions where memorizing the mnemonics would have helped.

    Retained Earnings is NDPAA ( Net income Dividends, Prior Period Adjustments, Accounting changes, Accounting for quasi-reorganization) Which is where that accounting Change would go,

    comprehensive income is

    NI+OCI, where OCI= PUFER ( Pension adjustments, Unrealized holding gains and losses, Foreign currency translation, effective cash flow hedges, and Revaluation surpluses (IFRS only))

    FAR 78
    REG 87
    BEC 78
    AUD 78
    Passed all exams on first try! Good luck to everyone!

    #418388

    Thank you all.

    The following information pertains to Maynard Corporation’s income statement for the 12 months just ended. The company has an effective income tax rate of 40%.

    Discontinued operations $(70,000)

    Extraordinary loss due to earthquake (90,000)

    Income from continuing operations (net of tax) 72,000

    Cumulative effect of change in accounting principle 60,000

    Maynard’s net income for the year is: answer shows as

    72,000 (net of tax???)

    -42,000

    -54,000

    =($24,000)

    I thought Income from continuing operations should be at GROSS:

    $120,000 (gross)

    -42,000

    -54,000

    =24,000

    #418389
    robastu
    Member

    Income from continuing ops is shown as a gross amount before it is shown as a net of tax amount. You should never add gross amounts and net of tax amounts!

    REG - 1/4 - 95
    BEC - 2/16 - 93
    AUD - 4/25 - 98
    FAR - 5/31

    #418390

    So when calculating to get the Net Income, you would use Income from Continuing “net of tax”?

    #418391
    memmy29
    Participant

    Right, each item of continuing ops is gross, then added together net of tax to include in net income (along with discontinued ops, extraordinary items)

    AUD-84, REG-75, BEC-84, FAR-77

    Licensed CPA

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    #418392
    Tncincy
    Participant

    The wiley book has a good example of the Net Income Statement both single and multistep and it helps to calculate from gross to net of tax and the items to include for comprehensive income. Take a look if you have wiley books.

    It begins with a 75
    Been here too long as a cheerleader....ready to pass

Viewing 9 replies - 1 through 9 (of 9 total)
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