Kaufman Reports Accumulated Other Comprehensive Income

Exercise 18-1 The following is from the 2021 annual report of Kaufman Chemicals, Inc.: Statements Of Comprehensive Income Years Ended December 31 2021 2020 2019 NetIncome $856 $766 $594 Other comprehensive income: Change in net unrealized gains on 34 (21) 23 investments, net of tax of $22, ($14), and $15 in 2021, 2020, and 2019 respectively Other (2) (1) 1 Totalcomprehensive income $888 $744 $618

Exercise 18-1 (continued) Kaufman reports accumulated other comprehensive income in its balance sheet as a component of shareholders’ equity as follows: ($ in millions) 2021 2020 Shareholders’ equity: Common stock $355 $355 Additional paid-in capital 8,567 8,567 Retained earnings 6,544 5,988 Accumulated other comprehensive income 107 75 Total shareholders’ equity $15,573 $14,985

1 Exercise 18-1 (continued) Part 1: What is comprehensive income and how does it differ from net income? Comprehensive income is the total non-owner change in equity for a given reporting period. It encompasses all changes in equity other than from transactions with owners. The majority of the non-owner transactions are reported in the income statement. However, there are items that are specifically required to be reported in other comprehensive income as opposed to net income such as the net unrealized gain/loss from investments in available-for-sale securities. Part 2: How is comprehensive income reported in the balance sheet? Comprehensive income has two separate components: (1) those created during the reporting period; and (2) the comprehensive income accumulated over the current and prior periods. The second item, i.e., the comprehensive income accumulated over the current and prior periods is reported in the balance sheet as a separate component of shareholders’ equity, as is shown in this exercise.

Exercise 18-1 (continued) Part 3: Why is Kaufman’s 2021 balance sheet amount different from the 2021 amount reported in the disclosure note? Explain. Kaufman’s 2021 balance sheet amount of $107 differs from the $888 reported in the disclosure note because the $888 includes the reported net income. Comprehensive income created during the reporting period can be reported in one of two ways: (1) As an expanded version of the income statement; or (2) As a separate statement immediately following the income statement. Part 4: From the information provided, determine how Kaufman calculated the $107 accumulated other comprehensive income in 2021. Beginning balance–accumulated OCI $ 75 Add: Change in net unrealized gain 34 Deduct: Other (2) Ending balance – accumulated OCI $107