Question 4.21: Other Comprehensive Income Assume a company’s beginning shar...
Other Comprehensive Income
Assume a company’s beginning shareholders’ equity is €200 million, its net income for the year is €20 million, its cash dividends for the year are €3 million, and there was no issuance or repurchase of common stock. The company’s actual ending shareholders’ equity is €227 million.
1. What amount has bypassed the net income calculation by being classified as other comprehensive income?
A. €0
B. €7 million
C. €10 million
D. €30 million
2. Which of the following statements best describes other comprehensive income?
A. Income earned from diverse geographic and segment activities.
B. Income earned from activities that are not part of the company’s ordinary business activities.
C. Income related to the sale of goods and delivery of services.
D. Income that increases stockholders’ equity but is not reflected as part of net income.
Solution to 1. C is correct. If the company’s actual ending shareholders’ equity is €227 million, then €10 million [€227 – (€200 + €20 – €3)] has bypassed the net income calculation by being classified as other comprehensive income.
Solution to 2. D is correct. Answers A and B are not correct because they do not specify whether such income is reported as part of net income and shown in the income statement. Answer C is not correct because such activities would typically be reported as part of net income on the income statement.