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On January 1, 2020, Richards Inc. had cash and common stock of $60,000. At that date, the company had no other asset, liability, or equity balances. On January 2, 2020, it purchased for cash $20,000 of debt securities that it classified as available-for-sale. It received interest of $3,000 during the year on these securities. In addition, it has an unrealized holding gain on these securities of $4,000 net of tax. Determine the following amounts for 2020: (a) net income, (b) comprehensive income, (c) other comprehensive income, and (d) accumulated other comprehensive income (end of 2020).

Respuesta :

Answer:

1. $3,000

2. $7,000

3. $4,000

4. $4,000

Explanation:

The computation is shown below:

1. Net income - In the income statement, the total revenues and the total expenses are recorded.  

If the total revenues are more than the total expenditure then the company earns net income

And, If the total revenues are less than the total expenditure then the company have a net loss

This net income or net loss would reflect in the statement of the retained earning account.

The interest received should be considered a net income i.e $3,000

2. Comprehensive income - It is computed below:

= Interest received + unrealized holding gain on these securities of

= $3,000 + $4,000 = $7,000

3. Other comprehensive income: The other comprehensive income is computed by taking a difference between the comprehensive income and the net income

In mathematically,

Other comprehensive income = Comprehensive income - net income

                                                = $7,000 - $3,000

                                                = $4,000

4. Accumulated other comprehensive income: Since no other income is given in the question, so we assume the unrealized holding gain on these securities as an accumulated other comprehensive income. i..e $4,000

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