Question

An inexperienced accountant for Ayayai Corp. showed the following in the income statement: income before income taxes $250,000 and unrealized gain on available-for-sale securities (before taxes) $85,000. The unrealized gain on available-for-sale securities and income before income taxes are both subject to a 25% tax rate. Prepare a correct statement of comprehensive income.

Answer 1

Answer:

                          Ayayai Corp.

      Statement of Comprehensive Income

            For the Year Ended xxx, 202x

Net income                                                $187,500

Other comprehensive income:

Unrealized gain on AFS securities           $85,000

Comprehensive income                          $272,500

Explanation:

In order to prepare a statement of comprehensive income we first need to determine net income after taxes = $250,000 x (1 - 25%) = $187,500

Unrealized gains or losses are not taxed until they are actually realized (either make profit or lose money).