Your client, Jeffrey Smith, President and CEO of Malico Corporation of, took acc

Question

Your client, Jeffrey Smith, President and CEO of Malico Corporation of, took accounting a number of years ago and was unaware of comprehensive income reporting. He is not convinced that any accounting standards exist for comprehensive income.

Write a formal business letter to your client in good form. Provide the following information to Mr. Smith:

a. What authoritative literature addresses comprehensive income? When was it issued?

b. Provide the definition of comprehensive income.

c. Define classifications within net income; give examples

d. Define classifications within other comprehensive income; give examples.

e. Explain the difference between the end of year treatment of net income and other comprehensive income to your client.

f. How should the company present other comprehensive income and accumulated other comprehensive income in its financial statements?

G. What are reclassification adjustments? Give examples.


desperately need help on this answered please

Explanation / Answer

(a). Comprehensive income: Comprehensive income attempts to measure the sum total of all operating and financial events that have changed the value of an owner's interets in a business. It is measured on a per share basis to capture the effects of dilution and options. It cancels out the effects of equity transactions and other events from non-owner sources. Total changes in equity = Comprehensive income + Changes in equity
(b). Definition of Comprehensive income: Comprehensive income is the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. It includes all changes in equity during the period except those resulting from investments by owners and distributions to owners. (c). Classifications within net income: 1. Cash flows from operating activities ex: loss on sale of equipment, depreciation 2. Cash flow from investing activities ex: sale of plant and equipment 3. Cash flows from financing activities ex: issuing common stock (d). Classifications within other comprehensive income: 1. Investments in debt and equity securities 2. Hedges 3. Pension and other post retirement benefits 4. Foriegn currency transactions (e). Financial reporting: Other comprehensive income: - Reported in the income statement below the net income - Reported in the statment of changes in equity. Other comprehensive income: - Reported in the income statement below the net income - Reported in the statment of changes in equity.

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