Question

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QUESTION 1 Blue Baker Company reported the following information for 2020: Net income Preferred dividends declared Common dividend declared Unrealized holding loss, net of tax Retained earnings Common stock Accumulated Other Comprehensive Income, Beginning Balance $300,000 50,000 10,000 5,000 400,000 200,000 25,000 For 2020, Blue Baker would report its ending balance of Accumulated Other Comprehensive Income of O A. $30,000 OB. $25,000 O C. $20,000 O D. $5,000

Answer 1

Hi There,

Here is my answer to the given question.

Option C is the correct answer i.e $ 20,000.

ACCUMULATED OTHER COMPREHENSIVE INCOME :

It is often listed on the financial statements to include all other revenues, expenses, gains, and losses that affected stockholder’s equity account during a period. In simple words, it adds additional detail to the balance sheet’s equity section to show what are the other kind of transactions that afftected stockholders's equity rather than the transactions that are reported in the income statement.

Other comprehensive income means changes in net assets of a company because of non owner events and transactions. It does not incude the transactions which are afftected by owners of the company.

It is shown in the balance sheet to alert users of financial statements to a potential for a realized gain or loss on the income statement down the road.

Other Comprehensive Income examples :

1. Unrealized gains or losses on securities available for sale
2. Foreign currency adjustments
3. Unrealized gains or losses on retirement benefit plans and on pensions
4. Unrealized gains or losses on other financial investments

EXPLANATION :

As per given question net income, preferred and common dividend & retained earnings are not to be included in the other comprehensive income because AOCI does not contain items of net income, transactions that affect shareholders. So therefore net income and dividends declared should be adjusted with retained earnings and shown separately and unrealized holding loss should be adjusted with accumulated other comprehensive income.

CONCLUSION :

Accumulated other comprehensive income ending balance = Opening balance - Unrealized loss

= $25,000 - $ 5000

= $ 20,000