4. General Knowledge

What is other comprehensive income (OCI)?

Non-owner changes in equity that bypasses the income statement

What is other comprehensive income made up of?

1. Cash Flow Hedges (aka Gain/Loss on Derivatives)

2. Pension adjustments

3. Unrealized Gains and Losses on Available for Sale Debt Investments

4. Foreign currency translation

What is comprehensive income?

Changes in equity during a period other than from:

1. owner/stockholder contributions

2. dividends/distributions

Essentially transactions with nonowners.

Describe transactions with nonowners.

Include events reported as revenues, expenses, gains, and losses. Revenues and gains increase equity, while expenses and losses decrease equity. It is this type of transaction that represents comprehensive income.

What is a more simplistic definition for comprehensive income?

Comprehensive Income = Net income + Other Comprehensive Income

What are the two ways comprehensive income can be presented?

1. As part of the income statement

2. As a separate financial statement called the Statement of Comprehensive Income

What is accumulated other comprehensive income (AOCI)?

This is the cumulative effects of other comprehensive income from year to year. Items of other comprehensive income accumulate in the equity account accumulated other comprehensive income (AOCI).

On what financial statement is the accumulated other comprehensive income account reported on?

On the balance sheet under stockholder’s equity.

What are derivatives?

financial securities/contracts that derive its value from changes in the underlying asset.

Give examples of derivatives

futures, forwards, options, and swaps

What is a futures contract?

Gives the holder the right and the obligation to purchase an asset at a preset price for a specified period of time. 

How are derivatives used in cash flow hedges accounted for by companies?

They are accounted at fair value on the balance sheet. However, they record gains or losses in equity as part of other comprehensive income.

What is the spot price?

The price to be paid today for inventory to be delivered in the future.