CPA Exam - FAR (Financial Accounting and Reporting)Financial ReportingEasy
A publicly traded company, Stellar Corp., prepares its financial statements in accordance with U.S. GAAP. Which of the following items would be reported as a component of 'Other Comprehensive Income' (OCI)?
- ANet income from continuing operations
- BGains or losses on the sale of property, plant, and equipment
- CDividend revenue from investments
- DUnrealized gains or losses on available-for-sale (AFS) debt securities
Show answer & explanationAnswer & explanation
Correct answer: D. Unrealized gains or losses on available-for-sale (AFS) debt securities
Other Comprehensive Income (OCI) includes specific gains and losses that are not recognized in net income but are part of comprehensive income. Unrealized gains and losses on available-for-sale (AFS) debt securities are a classic example of an OCI item.
Why the other options are wrong
- A. Net income from continuing operations is reported on the income statement, not OCI.
- B. Gains or losses on the sale of PP&E are recognized in net income, not OCI.
- C. Dividend revenue is recognized in net income, not OCI.
Other Comprehensive Income (OCI)
OCI consists of revenues, expenses, gains, and losses that are excluded from net income under U.S. GAAP but are included in comprehensive income.
- Includes items like unrealized gains/losses on AFS securities, foreign currency translation adjustments, pension adjustments, and certain derivative gains/losses.
- OCI items are accumulated in Accumulated Other Comprehensive Income (AOCI) in the equity section of the balance sheet.
- Some OCI items may be 'reclassified' to net income in future periods.
Memory trick: Net Income's Plus ONE: Other Nontraditional Earnings