Question

Consider the following two separate events for a company during the year:

1. Gain on sale of investments = $10.
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 increase net income and comprehensive income, ignoring tax effects?

A.) Net income = $10; Comprehensive income = $20.

B.) Net income = $10; Comprehensive income = $30.

C.) Net income = $30; Comprehensive income = $30.

D.) Net income = $30; Comprehensive income = $20.

Answer 1

Answer:

A.) Net income = $10; Comprehensive income = $20.

Explanation:

The gain on sale of investment is recorded in the income statement of the company and thus the gain on sale of investments given in question  will increase the net income of the company by $10.

The unrealized gain on investment from increase in fair value is reported in the other comprehensive income section and thus the Unrealized gain on investment from increase in fair value given in the question  will increase the other comprehensive income of the company by $20.

So based on the above discussion, the answer is A.) Net income = $10; Comprehensive income = $20.