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22 August, 06:51

Consider the following two separate events for a company during the year: 1. Loss on sale of investments = $30. 2. Unrealized gain on investment from increase in fair value = $20. The company reports the unrealized gain as a component of other comprehensive income. By how much would these two events affect net income and comprehensive income, ignoring tax effects?

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  1. 22 August, 09:31
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    A.) Net income = $ (30); Comprehensive income = $ (10).

    Explanation:

    First, the multiple choices to the question

    A.) Net income = $ (30); Comprehensive income = $ (10).

    B.) Net income = $ (30); Comprehensive income = $20.

    C.) Net income = $0; Comprehensive income = $ (10).

    D.) Net income = $ (10); Comprehensive income = $20.

    The question is to determine the effect of the two events listed on the Net Income as well as the comprehensive income

    First, we look at event one:

    The loss of sales of investment = #30

    The effect of this is to debit the income statement because it is a net loss of $30. It brings a reduction to the income side. Income will usually have a credit balance, but a net loss reduces income therefore, it will be debited.

    Second, the Unrealized gain on investment from increase in fair value = $20

    The effect is $10 which represents $30 from the loss - $20 from the unrealised gain. It will however, also decrease the comprehensive income by the $10.
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