Question

On January 1, 2020, Coronado Inc. had cash and common stock of $60,530. At that date, the company had no other asset, liability, or equity balances. On January 2, 2020, it purchased for cash $20,760 of debt securities that it classified as available-for-sale. It received interest of $4,100 during the year on these securities. In addition, it has an unrealized holding gain on these securities of $5,190 net of tax. Determine the following amounts for 2020:

(a) net income
(b) comprehensive income
(c) other comprehensive income
(d) accumulated other comprehensive income

Answer 1

Coronado Inc.'s net income for 2020 is $4,100, its comprehensive income is $9,290, its other comprehensive income is the unrealized gain of $5,190, and its accumulated other comprehensive income is also $5,190.

Step-by-step explanation:

To determine the net income, we'll only consider the interest received on the debt securities, which amounts to $4,100, since unrealized gains are not included in net income for available-for-sale securities. Next, comprehensive income is the sum of net income and other comprehensive income, which in this case includes the unrealized holding gain on the securities.

The other comprehensive income for 2020 is solely the unrealized holding gain of $5,190 net of tax. Finally, the accumulated other comprehensive income would also be $5,190 as there were no other items recorded in other comprehensive income for the year and assuming there was no balance to begin with.

Here are the calculated amounts for 2020:

1. Net income: $4,100 (interest income)
2. Comprehensive income: $4,100 (net income) + $5,190 (other comprehensive income) = $9,290
3. Other comprehensive income: $5,190 (unrealized holding gain net of tax)
4. Accumulated other comprehensive income: $5,190 (assuming it starts at $0 at the beginning of the year)