EXERCISES
Exercise 18-1
Requirement 1
Comprehensive income is a more expansive view of the change in shareholders’
equity than traditional net income. It is the total nonowner change in equity for a
reporting period. In fact, it encompasses all changes in equity other than from
transactions with owners. Transactions between the corporation and its shareholders
primarily include dividends and the sale or purchase of shares of the company’s stock.
Most nonowner changes are reported in the income statement. So, the changes other
than those that are part of traditional net income are the ones reported as “other
comprehensive income.”
Requirement 2
Two attributes of other comprehensive income are reported: (1) components of
comprehensive income created during the reporting period and (2) the comprehensive
income accumulated over the current and prior periods.
The second measure - the comprehensive income accumulated over the current
and prior periods – is reported in the balance sheet as a separate component of
shareholders’ equity. This is what Kaufman reported in its balance sheet ($107
million in 2009). Be sure to realize this amount represents the cumulative sum of the
changes in each component created during each reporting period (the disclosure note)
throughout all prior years.
Solutions Manual, Vol.2, Chapter 18
© The McGraw-Hill Companies, Inc., 2009
18-15
Exercise 18-1 (continued)
Requirement 3
Kaufman's 2009 balance sheet amount ($107 million) differs from the 2009
amount reported in the disclosure note. On the other hand, the comprehensive income
created during the reporting period can be reported either (a) as an additional section
of the income statement, (b) as part of the statement of shareholders’ equity, or (c) in a
disclosure note. This is the measure of comprehensive income Kaufman reported in
the disclosure note. Regardless of the placement a company chooses, the presentation
is similar. It will report net income, other components of comprehensive income, and
total comprehensive income, similar to the following:
($ in millions)
Net income
Other comprehensive income:
Net unrealized holding gains (losses) on investments (net of tax)†
Gains (losses) from and amendments to postretirement plans (net of tax)‡
Deferred gains (losses) from derivatives (net of tax)§
Gains (losses) from foreign currency translation (net of tax)*
Comprehensive income
†
‡
§
*
$xxx
$x
(x)
x
x
xx
$xxx
Changes in the market value of securities available-for-sale.
Gains and losses due to revising assumptions or market returns differing from expectations
and prior service cost from amending the plan (described in Chapter 17).
When a derivative designated as a cash flow hedge is adjusted to fair value, the gain or loss is
deferred as a component of comprehensive income and included in earnings later, at the same
time as earnings are affected by the hedged transaction (described in the Derivatives
Appendix to the text).
Gains or losses from changes in foreign currency exchange rates. The amount could be an
addition to or reduction in shareholders’ equity. (This item is discussed elsewhere in your
accounting curriculum.)
Notice that each component is reported net of its related income tax expense or
income tax benefit.
© The McGraw-Hill Companies, Inc., 2009
18-16
Intermediate Accounting, 5e
Exercise 18-1 (concluded)
Requirement 4
From the information Kaufman's financial statements provide, we can determine how
the company calculated the $107 million accumulated other comprehensive income in
2009:
($ in millions)
Accumulated other comprehensive income, 2008
Change in net unrealized gains on investments
Change in “other”
Accumulated other comprehensive income, 2009
$75
34
(2)
$ 107
Exercise 18-2
Cash (3 million shares x $17.15 per share).............................. 51,450,000
30,000
Common stock (3 million shares x $.01 par per share) .......
51,420,000
Paid-in capital – excess of par (remainder) ....................
Solutions Manual, Vol.2, Chapter 18
© The McGraw-Hill Companies, Inc., 2009
18-17
Exercise 18-3
February 12
Cash (2 million shares x $9 per share) ................................
Common stock (2 million shares x $1 par) ....................
Paid-in capital – excess of par (difference) ...................
February 13
Legal expenses (40,000 shares x $9 per share)...................
Common stock (40,000 shares x $1 par) .......................
Paid-in capital – excess of par (difference) ...................
18,000,000
2,000,000
16,000,000
360,000
40,000
320,000
Note: Because 2 million shares sold the previous day for $9 per share, it’s reasonable to assume
a $9 per share fair value.
February 13
Cash ..............................................................................
Common stock (80,000 shares x $1 par) ......................
Paid-in capital – excess of par, common* ...............
Preferred stock (4,000 shares x $50 par) .......................
Paid-in capital – excess of par, preferred** .............
945,000
80,000
640,000
200,000
25,000
* 80,000 shares x [$9 market value - $1 par]
** Since the value of the common shares is known ($720,000), the market value of the
preferred ($225,000) is assumed from the total selling price ($945,000).
November 15
Property, plant, and equipment (cash value) ..................
Common stock (380,000 shares at $1 par per share) ......
Paid-in capital – excess of par (difference) ................
© The McGraw-Hill Companies, Inc., 2009
18-18
3,688,000
380,000
3,308,000
Intermediate Accounting, 5e
Exercise 18-8
1. January 23, 2009
($ in millions)
Treasury stock (10 million shares x $20) ..................................... 200
Cash ....................................................................................
200
2. September 3, 2009
Cash (1 million shares x $21) ......................................................
Treasury stock (1 million shares x $20)...................................
Paid-in capital – share repurchase (remainder) .....................
3. November 4, 2009
Cash (1 million shares x $18) ......................................................
Paid-in capital – share repurchase (from 2.) .............................
Retained earnings (remainder) ..................................................
Treasury stock (1 million shares x $20)...................................
21
20
1
18
1
1
20
Balance Sheet as of 12/31/2009
Shareholders’ Equity
Paid-in Capital
Common Stock ........................................................... 140
Additional Paid-in Capital .......................................... 2,240
Retained Earnings ...............................................................
xx
AOCI ..................................................................................
xx
Treasury Stock .................................................................... 160
Solutions Manual, Vol.2, Chapter 18
© The McGraw-Hill Companies, Inc., 2009
18-23