Question

What alternatives does a company have for reporting its comprehensive income under U.S. GAAP and IFRS?

1) Present net income in the income statement and present comprehensive income in a separate, but consecutive, statement of comprehensive income.
2) Present net income in the income statement and present comprehensive income in a footnote to the financial statements.
3) Present net income and comprehensive income in a single continuous performance statement.
4) I and III only.
5) II and III only.
6) I, II and III.
7) I and II only.

Answer 1

A company can report its comprehensive income under U.S. GAAP and IFRS by presenting net income in the income statement and comprehensive income either in a separate, consecutive statement or together in a single continuous performance statement. The correct options are I and III, which makes option 4 the right choice.

Step-by-step explanation:

Under both U.S. GAAP and IFRS, a company has two main alternatives for reporting its comprehensive income:

1. Present net income in the income statement and present comprehensive income in a separate, but consecutive, statement of comprehensive income.
2. Present net income and comprehensive income in a single continuous performance statement (also known as a single-statement approach).

Option 2, presenting comprehensive income in a footnote, is not an accepted method under either U.S. GAAP or IFRS. Therefore, the correct answer to the student’s question is option 4 - I and III only. Companies may choose between a two-statement approach or a single-statement approach to present both net income and comprehensive income, thereby enabling users of financial statements to understand the performance and other comprehensive income items that are not included in net income.