CPA Exam - FAR (Financial Accounting and Reporting)Financial ReportingEasy
A company is preparing its year-end financial statements. During the year, the company recognized $500,000 in revenue from sales, $200,000 in cost of goods sold, $150,000 in operating expenses, and $20,000 in interest expense. Additionally, the company had an unrealized gain of $30,000 on available-for-sale (AFS) securities and a foreign currency translation adjustment loss of $10,000. What is the company's comprehensive income for the year?
- A$130,000
- B$150,000
- C$170,000
- D$140,000
Show answer & explanationAnswer & explanation
Correct answer: B. $150,000
Comprehensive income includes net income plus other comprehensive income (OCI) items. Net income is calculated as revenue minus all expenses. OCI items include unrealized gains/losses on AFS securities and foreign currency translation adjustments.
Why the other options are wrong
- A. This incorrectly subtracts the foreign currency translation adjustment from net income, but does not include the unrealized gain.
- C. This incorrectly adds all items, including those that would be subtracted.
- D. This calculates net income correctly, but does not include any OCI items.
Comprehensive Income
Comprehensive income is the change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.
- Comprehensive income = Net Income + Other Comprehensive Income (OCI).
- OCI includes items like unrealized gains/losses on AFS securities and foreign currency translation adjustments.
- It represents a broader measure of financial performance than net income alone.
Memory trick: Net Income is the base, OCI adds the rest of the race.