Other Comprehensive Income

The income statement summarizes the changes in net assets (and therefore shareholders’ equity) during the
period from transactions with nonowners. These transactions are referred to as revenues, expenses, gains,
and losses. Revenues and gains represent increases in net assets (ΔSE > 0), while expenses and losses
represent decreases in net assets (ΔSE < 0). This discussion of revenues, expenses, gains, and losses as
changes in net assets (or changes in shareholders’ equity) also ties back to the definition of these elements in
the conceptual framework in Chapter 1.
The exception to the previous discussion about what gets included in the income statement is that there are a
few transactions with nonowners that affect net assets but are not reported in the income statement. We report
these gains and losses as other comprehensive income (OCI). And just like revenues, expenses, gains, and
losses in the income statement accumulate in a single equity account—Retained Earnings—items included as
other comprehensive income accumulate in a separate shareholders’ equity account—Accumulated Other
Comprehensive Income (AOCI). Thus, AOCI and Retained Earnings serve essentially the same role by
accumulating the effects over time of transactions with nonowners.
Discuss:
Using at least one outside source research and explain why we use OCI and AOCI. Why don’t we run all of
these transactions through net income and into retained earnings? Does the conceptual framework provide
clarification to justify where items are classified?
Explain FASB’s view on OCI and AOCI.
Comprehension:
Refer back to your 10-k and identify if OCI and AOCI are present in your financial statements? Is there a
disclosure note attached to this item? If so what does it say (feel free to copy and paste the disclosure note)?
Describe earnings per share (EPS) and explain the required disclosures of EPS for certain income statement
components. Using your 10-k identify the EPS and the disclosures associated with EPS. Why is EPS important
to decision-makers?