Accounting Summary for Investments in Securities

Exhibit 15.8 summarizes the standard accounting for investments in securities. Recall that many investment securities are classified as either short term or long term depending on management’s intent and ability to convert them in the future. Understanding the accounting for these investments enables us to draw better conclusions from financial statements in making business decisions.
 

EXHIBIT 15.8 Accounting for Investments in Securities

Comprehensive Income Comprehensive income Net change in equity for a period, excluding owner investments and distributions. is defined as all changes in equity during a period except those from owners’ investments and dividends. Specifically, comprehensive income is computed by adding or subtracting other comprehensive income to net income:



Other comprehensive income Equals net income less comprehensive income; includes unrealized gains and losses on available-for-sale securities, foreign currency adjustments, and pension adjustments. includes unrealized gains and losses on available-for-sale securities, foreign currency adjustments, and pension adjustments. (Accumulated other comprehensive income is defined as the cumulative impact of other comprehensive income.)
Comprehensive income can be reported in financial statements:

1. As part of the statement of stockholders’ equity
2. On the income statement
3. In a statement of comprehensive income

Apple   Option 1 is the most common. Apple, for example, reports comprehensive income as part of its statement of shareholders’ equity in Appendix A near the end of the book as follows ($ millions):



The 2009 cumulative total of Apple’s other comprehensive income from all prior periods is $77, which is reported in its statement of shareholders’ equity and is its accumulated other comprehensive income. That total is carried over to the equity section of its balance sheet as follows:



Point: Some users believe that since AFS securities are not actively traded, reporting fair value changes in income would unnecessarily increase income variability and decrease usefulness.