Statements and presentation
Net Income or OCI
The PUFI items go to OCI; everything else, including all equity securities, hits net income.
How the exam words it
- -The stem asks 'which item belongs in Other Comprehensive Income (OCI)' or where an unrealized gain 'is reported'.
- -It gives net income plus a list of gains and losses and asks 'what is comprehensive income?'.
- -An AFS debt security is sold and it asks 'what is the reclassification adjustment?'.
- -It mixes foreign currency translation adjustments with transaction gains, or pension amounts with pension expense.
The playbook
- 1Run the PUFI list: pension adjustments, unrealized gains and losses on AFS debt, foreign currency translation adjustments, and effective cash flow hedges go to OCI.
- 2Send everything else to net income: trading securities, all equity securities (ASU 2016-01), and foreign currency transaction gains and losses.
- 3When an OCI item is realized, reclassify it out of AOCI so the gain is not counted twice, and remember comprehensive income = net income + OCI.
The trap
Putting unrealized gains and losses on equity securities in OCI. Since ASU 2016-01 equity securities are marked through net income; only AFS debt runs through OCI.
How the exam varies it
The same pattern, re-skinned along these axes:
Which item: pension, translation, AFS debt, or equity securitiesClassify one item versus compute comprehensive income or ending AOCIInitial unrealized change versus a reclassification adjustment on sale
Drill this pattern
8 questions of Net Income or OCI from across the AUD topics. Clear it by getting 5 right with a streak of 3.