CPA Exam - FAR (Financial Accounting and Reporting)Financial ReportingMedium
A publicly traded company, Global Corp., prepares its financial statements in accordance with U.S. GAAP. Which of the following is considered a component of Other Comprehensive Income (OCI)?
- ACumulative effect of a change in accounting principle (retrospective application).
- BNet income from continuing operations.
- CUnrealized gain on available-for-sale debt securities.
- DLoss from discontinued operations.
Show answer & explanationAnswer & explanation
Correct answer: C. Unrealized gain on available-for-sale debt securities.
Other Comprehensive Income (OCI) includes revenues, expenses, gains, and losses that are excluded from net income but are included in comprehensive income. Unrealized gains and losses on available-for-sale (AFS) debt securities are a prime example of OCI components.
Why the other options are wrong
- A. Cumulative effect adjustments for changes in accounting principles are typically recognized as adjustments to retained earnings (retrospective application), not OCI.
- B. Net income is the starting point for comprehensive income, not a component of OCI itself.
- D. Loss from discontinued operations is reported as a separate line item within net income.
Other Comprehensive Income (OCI)
Revenues, expenses, gains, and losses that are excluded from net income but are included in comprehensive income and accumulated in a separate component of equity.
- Includes unrealized gains/losses on AFS debt securities.
- Includes foreign currency translation adjustments.
- Includes certain pension adjustments (prior service costs, actuarial gains/losses).
- Includes effective portion of cash flow hedges.
Memory trick: OCI: P.U.F.E.R. - Pension, Unrealized, Foreign, Effective.