7CA
Question
Question: Willie Nelson, Jr., controller for Jenkins Corporation, is preparing the company’s financial statements at year-end. Currently, he is focusing on the income statement and determining the format for reporting comprehensive income. During the year, the company earned net income of \(400,000 and had unrealized gains on available-for-sale securities of \)15,000. In the previous year, net income was $410,000, and the company had no unrealized gains or losses.
Instructions
(a) Show how income and comprehensive income will be reported on a comparative basis for the current and prior years, using the two statement format.
(b) Show how income and comprehensive income will be reported on a comparative basis for the current and prior years, using the one statement format.
(c) Which format should Nelson recommend?
Step-by-Step Solution
VerifiedThe two statement format of reporting comprehensive income is recommended by Nelson.
An income statement is a report that contains the revenues and expenses of a business entity for a particular accounting period. Such a report ascertains the profits earned or losses incurred from operating and non-operating activities.
| Jenkins Corporation | ||
| Comparative Income Statement | ||
| For the year ended………… | ||
Particulars | Current Year | Previous Year |
Sales revenue | ||
Less: Cost of goods sold | ||
Gross profit | ||
Less: Operating expense | ||
Net income | $400,000 | $410,000 |
| Jenkins Corporation | ||
| Comparative Income Statement | ||
| For the year ended………… | ||
Particulars | Current Year | Previous Year |
Net income | $400,000 | $410,000 |
Other comprehensive income | ||
Unrealized holding gain | $15,000 | $0 |
Comprehensive income | $415,000 | $410,000 |
The two-statement format of reporting comprehensive income is recommended because it involves the preparation of two different statements and helps in understanding the identification of gains or losses associated with the comprehensive income.