Question

Korte Company reported the following information for 2020

Sales revenue $2,500,000
Cost of goods sold 1,750,000
Operating expenses 275,000
Unrealized holding gain on available-for-sale debt securities 85,000
Cash dividends received on the securities 10,000
For 2020, Korte would report comprehensive income of
a. $570,000.
b. $560,000.
c. $485,000.
d. $85,000.

Answer 1

Korte Company's comprehensive income for 2020 is calculated by adding net income, unrealized holding gain on securities, and cash dividends received, resulting in a comprehensive income of $570,000.

Step-by-step explanation:

To calculate Korte Company's comprehensive income for 2020, we need to consider not only the net income but also other comprehensive income items that are not included in the net income calculation. Net income is calculated by subtracting both cost of goods sold and operating expenses from sales revenue. So, the company's net income for 2020 is $475,000 ($2,500,000 - $1,750,000 - $275,000).

However, comprehensive income also includes unrealized gains and losses on available-for-sale securities and other items that bypass the income statement. In this case, the unrealized holding gain and cash dividends from the securities are also part of comprehensive income. Therefore, the comprehensive income for 2020 would be calculated as follows: $475,000 + $85,000 + $10,000 = $570,000. Thus, the correct answer is (a) $570,000.