[vodrldnr]

Under SFAC, comprehensive income excludes changes in equity resulting from which of the following ?

a. Loss from discontinued operation

b. prior period error correction

c. dividend paid to stockholders

d. unrealized loss on securities classified as AFS

why is answer C????

I was thinking as dividend paid out, R/E will decrease ??? which affect the changes in equity during a period ???

It ain't About How Hard You Hit

[ScarletKnightCPA]

Comprehensive Income excludes effects of owner contributions and distributions.

Comprehensive income is the result of all revenue, gains, expenses, and losses. Owner contribution and distribution does not reflect a revenue, gain, expense, or loss.

So, yes Comprehensive Income is the effects of change in equity… less the effects of owner contributions and distributions.

Far: 76 (Wiley Test Bank)
Aud: 77 (Wiley Test Bank)
Reg: 61, 76 (Wiley book, Wiley Test Bank)
Bec: 86 (Wiley Test Bank)

MBA in progress

[vodrldnr]

ScarletKnight CPA > by definition, I do understand it

but I memorize comprehensive income as

Net income
plus or Minus of following items

Available-for-sale securities fair value changes that were previously written down as impaired
Available-for-sale securities unrealized gains and losses
Cash flow hedge derivative instrument gains and losses
Debt security unrealized gains and losses arising from a transfer from the available-for-sale category to the held-to-maturity category
Foreign currency gains and losses on intra-entity currency transactions where settlement is not planned or anticipated in the foreseeable future
Foreign currency transaction gains and losses that are hedges of an investment in a foreign entity
Foreign currency translation adjustments
Pension or post-retirement benefit plan gains or losses
Pension or post-retirement benefit plan prior service costs or credits
Pension or post-retirement benefit plan transition assets or obligations that are not recognized as a component of the net periodic benefit or cost

a. Loss from discontinued operation => I know it is not answer cuz it is included in Net income
d. unrealized loss on securities classified as AFS => it is on the list of item above

what really confusing me is B.

why prior adj is part of Comprehensive income ?? isn't it reported as R/E for the beginning balance earliest period of presented ???? and R/E is not I/S item. it is B/S item.

It ain't About How Hard You Hit

[ScarletKnightCPA]

You answered your own question.

The prior period adjustment effects the Retained earnings, which effects equity. Comprehensive Income attempts to capture the change to equity due to the total revenue, gains, expenses, and losses… less owner contribution/distribution effects.

Perhaps the definition of Comprehension income will help. Per FAS 130:

“Comprehensive income is defined in Concepts Statement 6 as “the change in equity [net
assets] 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” (paragraph 70).”

https://www.fasb.org/pdf/fas130.pdf

Does that help?

Far: 76 (Wiley Test Bank)
Aud: 77 (Wiley Test Bank)
Reg: 61, 76 (Wiley book, Wiley Test Bank)
Bec: 86 (Wiley Test Bank)

MBA in progress

[vodrldnr]

“comprehensive Income attempts to capture the change to equity ”

=> does this mean that all I/S items less owner contribution/distribution effects (resulting from changes in owners equity) are reflected on Comprehensive income ?

so can I think it like this ..

Although some items are not listed on my previous reply, there are still plenty of items that are captured in Comprehensive income?

It ain't About How Hard You Hit

[Nazim Toksavul]

Hi, this is my alternative account… back to your question:

Close but just to ensure we are of the same mind here, this is the high level formula of Comprehensive Income

Comprehensive Income = Net Income + Other Comprehensive Income.

So… anything that impacts Net Income is also technically part of Comprehensive Income.

If the prior period correction impact Net income… it also has a corresponding effect on Comprehensive Income.

I am unsure whether the list you provided is comprehensive or not… it looks like it may be, but you must consider that ANYTHING that impacts either NET INCOME or the Other Comprehensive Income effects Comprehensive Income.

Questions?

FAR: 08/31/2013
AUD: 11/04/2013
REG: 05/28/2014
BEC: 08/19/2014

MBA in progress

[vodrldnr]

Nazim Toksavul>

one part of your answer is confusing me..

“If the prior period correction impact Net income… it also has a corresponding effect on Comprehensive Income.”

I think Prior period correction affect R/E … and I think net income is one that increase R/E??

with your answer .. my understanding so far is like..

As the R/E which is part of Equity and prior period adj affect R/E, total equity will be changed=> it means Prior period adj affect comprehensive income ??

am I right ???…

It ain't About How Hard You Hit

[Nazim Toksavul]

Yes Net Income is closed out to Retained earnings and yes the prior period adjustment to R/E will impact comprehensive income… unless that prior period adjustment is related to owner contribution/distribution activity… which is possible but the question does not explicitly state so I think we need to assume it's not. There may be more exceptions that I am unaware of but this is the logic of the question.

Logically, you would not adjust the retained earnings if the prior period adjustment would not had impacted the net income but impacted the balance sheet… In that case you would be adjusting the Accumulated Other Comprehensive Income account.

Another Item from FAS 130 that addresses this question:

Including Prior-Period Adjustments in Comprehensive Income
106. The Board considered whether items accounted for as prior-period adjustments should be
included in comprehensive income of the current period. Opinion 9, as amended by FASB
Statement No. 16, Prior Period Adjustments, requires that prior-period adjustments be reflected
as retroactive restatements of the amounts of net income (and the components thereof) and
retained earnings balances (as well as other affected balances) for all financial statements
presented for comparative purposes. In single-period financial statements, prior-period
adjustments are reflected as adjustments of the opening balance of retained earnings. The Board
decided that because of the requirement for retroactive restatement of earlier period financial
statements, items accounted for as prior-period adjustments are effectively included in
comprehensive income of earlier periods and, therefore, should not be displayed in
comprehensive income of the current period.

FAR: 08/31/2013
AUD: 11/04/2013
REG: 05/28/2014
BEC: 08/19/2014

MBA in progress

[vodrldnr]

thank you so much…

thanks to your help…

my realization here is that Since N/I is included in R/E, when prior period adj affects the R/E, Net income( the portion inside of R/E) is also affected together.

and since comprehensive income is Net income +other comprehensive income, the Comprehensive income is affected by Prior period adj …

does it sound right ???

It ain't About How Hard You Hit

[Nazim Toksavul]

Dead on. Exactly.

FAR: 08/31/2013
AUD: 11/04/2013
REG: 05/28/2014
BEC: 08/19/2014

MBA in progress

[vodrldnr]

perfectly understood. thank you so much. you are awesome!

It ain't About How Hard You Hit

[Susan]

but I have a question about the following example. Since the $1000 change in principle goes to Beginning Retained Earnings, why it doesn't affect the comprehensive income?

Palmyra 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 Palmyra's comprehensive income?

a. $4,000
b. $10,000
c. $11,000
d. $17,000

[Author]

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