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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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FASB’s concept of comprehensive income:

  1. excludes the payment of dividends.
  2. has a primary drawback because it allows management to manipulate the income figure to a certain extent.
  3. requires that all transactions must be shown on the income statement.
  4. allows items that are not necessarily under management’s control, such as natural disasters, to be shown as an adjustment of retained earnings.

To determine

Concept introduction:

Financial statements:

Financial statements are prepared to summaries the account at the end of the period. The statements prepared are Income statement, Balance sheet, Statement of owner’s equity and Cash flows statements.

Balance Sheet:

The Balance sheet is a summary of Assets, Liabilities and equity accounts that reports the financial position of the business as on a specific date. Assets are further classifies into Current Assets, Long Term Investments, Plant Assets and Intangible assets. And Liabilities are further classified into Current Liabilities and Long term liabilities.

Income Statement:

Income Statement is the part of the financial statement which is prepared to calculate the net income earned by the organization. In the income statement, all expenses are subtracted from the revenues to calculate the net income. It is prepared for a particular period.

To choose:

The correct statement about FASB comprehensive income.

Explanation

Explanation for correct answer:

Comprehensive income is considered as appropriation of retained earnings. Hence the correct option is b.

Explanation for incorrect answers:

a. Comprehensive income is considered as appropriation of retained earnings...

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