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Format of Statement of Income and Comprehensive Income In the period they are recognized, entities must present all items that meet the definition of comprehensive income:

 In a combined statement of income and comprehensive income, or

 In two separate, but consecutive statements.(ASC 220‐10‐45‐1C)

Exhibit 5.1 Items Required to Be Displayed in Either Acceptable Format of the Statement of Comprehensive Income

Reporting Comprehensive Income
Single Continuous Statement of Net Income and Comprehensive Income	Two Separate but Consecutive Statements
Show:Components of net incomeTotal net incomeComponents of other comprehensive incomeTotal of other comprehensive incomeTotal comprehensive income	In the statement of net income show:Components of net incomeTotal of net incomeIn the statement of comprehensive income presented immediately after the statement of net income begin with net income and show:Components of other comprehensive incomeTotal of other comprehensive incomeTotal of comprehensive income
(ASC 220‐10‐45‐1A)	(ASC 220‐10‐45‐1B and 45‐1C)

Entities with an Outstanding Noncontrolling Interest In addition to presenting consolidated net income and comprehensive income, entities with an outstanding noncontrolling interest are required to report the following items in the financial statement in which net income and comprehensive income are presented:

 Amount of net income and comprehensive income attributable to the parent.

 Amount of net income and comprehensive income attributable to the noncontrolling interest in a less‐than‐wholly‐owned subsidiary.(ASC 220‐10‐45‐5)

The Order of Presentation and Headings The basic order of presentation of information in an income statement (or statement of income and comprehensive income) is defined by other accounting topics, as shown in Example 5.1 later in this chapter. Other than in the section “income from continuing operations,” the display of revenues, expenses, gains, losses, and other comprehensive income is predetermined by the Codification guidance. Only within income from continuing operations do tradition and industry practice determine the presentation.

The three items that are shown in the heading of an income statement are:

1 The name of the entity whose results of operations is being presented.

2 The title of the statement.

3 The period of time covered by the statement.

Entity Name The entity’s legal name should be used and supplemental information could be added to disclose the entity’s legal form as a corporation, partnership, sole proprietorship, or other form if that information is not apparent from the entity’s name.

Statement Titles The use of the titles “Income Statement,” “Statement of Income and Comprehensive Income,” “Statement of Operations,” or “Statement of Earnings” denotes preparation in accordance with GAAP. If another comprehensive basis of accounting were used, such as the cash or income tax basis, the title of the statement would be modified accordingly. “Statement of Revenue and Expenses—Income Tax Basis” or “Statement of Revenue and Expenses—Modified Cash Basis” are examples of such titles.

Statement Date The date of an income statement must clearly identify the time period involved, such as “Year Ending March 31, 20X1.” That dating informs the reader of the length of the period covered by the statement and both the starting and ending dates. Dating such as “The Period Ending March 31, 20X1” or “Through March 31, 20X1” is not useful because of the lack of precision in those titles. Income statements are rarely presented for periods in excess of one year but are frequently seen for shorter periods such as a month or a quarter. Entities whose operations form a natural cycle may have a reporting period end on a specific day (e.g., the last Friday of the month). These entities should head the income statement “For the 52 Weeks Ended March 29, 20X1” (each week containing seven days, beginning on a Saturday and ending on a Friday). Although that fiscal period includes only 364 days (except for leap years), it is still considered an annual reporting period.

Consistency of Form Income statements generally should be uniform in appearance from one period to the next. The form, terminology, captions, and pattern of combining insignificant items should be consistent. If comparative statements are presented, the prior year’s information should be restated to conform to the current year’s presentation if changes in presentation are made.

Aggregation The level of disaggregation is a matter of judgment. It should be efficient to give to readers meaningful information. Aggregation of items should not serve to conceal significant information, such as netting revenues against expenses or combining dissimilar types of revenues, expenses, gains, or losses. Although the Codification does not offer benchmarks for disaggregation of income items, the SEC's Division of Corporate Finance's Form and Content of and Requirements for Financial Statements, Regulation S‐X 5‐03(1) does require separate presentation for some items that exceed 10% of total revenue. Those items include net sales of tangible products, service revenue, rental income, operating revenue of public utilities or others, and other revenues. The SEC also requires the costs and expenses related to those items to be presented separately.¹ Non‐SEC preparers may want to consider those thresholds when deciding which amounts to disaggregate. Any benchmarks used should be applied consistently.

The category “other or miscellaneous expense” should contain, at maximum, an immaterial total amount of aggregated insignificant items. Once this total approaches a material amount of total expenses, some other aggregations with explanatory titles should be selected.

Income from Continuing Operations The section “income from continuing operations” includes all revenues, expenses, gains, and losses that are not required to be reported in other sections of an income statement.

There are two generally accepted formats for the presentation of income from continuing operations:

 Single‐step and

 Multiple‐step

Single‐Step Format In the single‐step format, items are classified into two groups: revenues and expenses. The operating revenues and other revenues are itemized and summed to determine total revenues. The cost of goods sold, operating expenses, and other expenses are itemized and summed to determine total expenses. The total expenses (including income taxes) are deducted from the total revenues to arrive at income from continuing operations.

Multiple‐Step Format In a multiple‐step format, operating revenues and expenses are separated from nonoperating revenues and expenses to provide more information concerning the firm's primary activities. This format breaks the revenue and expense items into various intermediate income components so that important relationships can be shown and attention can be focused on significant subtotals. Some examples of common income components are as follows:

1 Gross profit (margin)

2 Operating income

3 Income before income taxes

Income from Continuing Operations The following items of revenue, expense, gains, and losses are included within income from continuing operations:

1 Sales or service revenues

2 Cost of goods sold

3 Operating expenses

4 Gains and losses

5 Other revenues and expenses

6 Unusual and/or infrequently occurring

7 Goodwill impairment losses

8 Exit or disposal activity costs

9 Income tax expense

Net Income The section ends in a subtotal that varies depending upon the existence of discontinued operations. Net income reflects all items of profit and loss recognized during the period, except for error corrections. (ASC 220‐10‐45‐7A) The requirement that net income be presented as one amount does not apply to those entities that have statements different in format from commercial enterprises:

 Investment companies.

 Insurance entities.

 Certain not‐for‐profit entities (NFPs).

 (ASC 220‐10‐45‐7A)

Items of Other Comprehensive Income ASC 220‐10‐45‐10A lists the following as items currently within other comprehensive income:

 Foreign currency translation adjustments (see paragraph 830‐30‐45‐12).

 Gains and losses on foreign currency transactions that are designated as, and are effective as, economic hedges of a net investment in a foreign entity, commencing as of the designation date (see paragraph 830‐20‐35‐3(a)).

 Gains and losses on intra‐entity foreign currency transactions that are of a long‐term investment nature (that is, settlement is not planned or anticipated in the foreseeable future), when the entities to the transaction are consolidated, combined, or accounted for by the equity method in the reporting entity's financial statements (see paragraph 830‐20‐35‐3(b)).

 The difference between changes in fair value of the excluded components of derivatives designated in qualifying hedges and the initial value of the excluded components recognized in earnings under a systematic and rational method.²

 Gains and losses (effective portion) on derivative instruments that are designated as, and qualify as, cash flow hedges (see paragraph 815‐20‐35‐1(c)).

 For derivatives that are designated in qualifying hedging relationships, the difference between changes in fair value of the excluded components and the initial value of the excluded components recognized in earnings under a systematic and rational method in accordance with ASC 815‐20‐25‐83A.

 Unrealized holding gains and losses on available‐for‐sale debt securities (see paragraph 320‐10‐45‐1).³

 Unrealized holding gains and losses that result from a debt security being transferred into the available‐for‐sale category from the held‐to‐maturity category (see paragraph 320‐10‐35‐10(c)).

 Amounts recognized in other comprehensive income for debt securities classified as available‐for‐sale and held‐to‐maturity related to an other‐than‐temporary impairment recognized in accordance with Section 320‐10‐35 if a portion of the impairment was not recognized in earnings.⁴

 Subsequent decreases (if not an other‐than‐temporary impairment) or increases in the fair value of available‐for‐sale securities previously written down as impaired (see paragraph 320‐10‐35‐18).⁵

 Gains or losses associated with pension or other postretirement benefits (that are not recognized immediately as a component of net periodic benefit cost) (see paragraph 715‐20‐50‐1(j)).

 Prior service costs or credits associated with pension or other postretirement benefits (see paragraph 715‐20‐50‐1(j)).

 Transition assets or obligations associated with pension or other postretirement benefits (that are not recognized immediately as a component of net periodic benefit cost) (see paragraph 715‐20‐50‐1(j)).

 Changes in fair value attributable to instrument‐specific credit risk of liabilities for which the fair value option is elected (see paragraph 825‐10‐45‐5).

 Effects of changes in the discount rates used to measure traditional and limited‐payment long‐duration contracts⁶ (see ASC 944‐40‐35‐6A(b)(1)).

 Effects of changes in the fair value of a market risk benefit attributable to a change in the instrument‐specific credit risk⁷ (see ASC 944‐40‐35‐6A(b)(1)).

The following items do not quality as comprehensive income:

 Changes in equity resulting from investment by and distributions to owners.

 Items that are required to be reported as direct adjustments to paid‐in‐capital, retained earnings, or other nonincome equity accounts.(ASC 220‐10‐45‐10B)

Other comprehensive income is recognized and measured in accordance with the accounting pronouncement that deems it part of other comprehensive income.

Income Tax Effects The items of other comprehensive income can be reported either:

 Net of related tax effects in the statement, or

 Gross with the tax effects related to all components reported on a single, separate line.(ASC 220‐10‐45‐11)

The tax effects of each component of other comprehensive income must be presented in the statement in which those components are presented or in the notes of the financial statements. (ASC 220‐10‐45‐12 and 50‐4) If gross reporting is used, the notes to the financial statements must disclose the tax effects related to each component (if there is more than one component). Examples 5.5 and 5.6 later in this chapter illustrate the two presentations.

The Codification also has guidance on the reclassification of certain tax effects from AOCI. The guidance is intended to help entities address certain stranded income tax effects in accumulated other comprehensive income (AOCI) resulting from the Tax Cuts and Jobs Act. Under the guidance, entities have an option to reclassify stranded tax effects within AOCI to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded. If the entity elects to reclassify the income tax effects of the Tax Cuts and Jobs Act from AOCI to retained earnings, the reclassification includes:

1 The effects of the change in the U.S. federal corporate income tax rate as the gross defined tax amounts and related valuation allowances.

2 Other income tax effects that the entity elects to reclassify.(ASC 220‐10‐45‐12A)

The guidance recommends financial statement preparers disclose:

 A description of the accounting policy for releasing income tax effects from AOCI.

 Whether they elect to reclassify the stranded income tax effects from the Tax Cuts and Jobs Act, and information about the other income tax effects that are reclassified. If the preparers elect not to reclassify the effects, they must disclose that fact in the period of adoption.(ASC 220‐10‐50‐1 through 50‐3)The guidance affects any organization thatIs required to apply the provisions of Topic 220, Income Statement—Reporting Comprehensive Income, andHas items of other comprehensive income for which the related tax effects are presented in other comprehensive income as required by GAAP.

Accumulated Other Comprehensive Income At the end of the reporting period, that reporting period's total of other comprehensive income is transferred to a component of equity. It is presented separately from retained earnings and additional paid‐in capital on the balance sheet. (ASC 220‐10‐45‐14) On the face of the financial statements, or as a note, the entity must present:

 The changes in the accumulated balances of each component of other comprehensive income, and

 Current period reclassifications out of accumulated other comprehensive income and other amounts of other comprehensive income, either before‐tax or net‐of‐tax.(ASC 220‐10‐45‐14A and 50‐5)

Reclassification Adjustments Some items impact other comprehensive income in one period and then affect net income in the same or a later period. Adjustments of that type are called reclassification adjustments. (ASC 220‐10‐45‐15)⁸ The process of including in net income an item previously reported in other comprehensive income is often referred to as “recycling.” The entity determines the reclassification adjustments for each component of other comprehensive income. The sale of an investment in a foreign entity may trigger an adjustment for foreign currency items that had been included in other comprehensive income previously. In such a case, the requirement for a reclassification is limited to accumulated foreign currency translation gains or losses). An adjustment is also necessary upon the complete (or substantially complete) liquidation of an investment in a foreign entity. See ASC 830‐30‐40‐1 through 40‐1A for more information.

Amounts accumulated in other comprehensive income from cash flow hedges are reclassified into earnings in the same period(s) in which the hedged forecasted transactions (such as a forecasted sale) affect earnings. If it becomes probable that the forecasted transaction will not occur, the net gain or loss in accumulated other comprehensive income must be immediately reclassified. (ASC 815‐30‐35‐38)

Reclassification adjustments required by other Topics can be presented by component of other comprehensive income, either:

 In a single note, or

 Parenthetically on the face of their annual financial statement.(ASC 220‐10‐45‐17 and 50‐6 describes the information requirements for disclosure in the notes)

If an entity chooses to present information for items reclassified out of AOCI on the face of the statement, the entity should present parenthetically:

 The effect of significant amounts reclassified from each component of AOCI based on its source, and

 The aggregate tax effect of those significant reclassifications on the line item for income tax expense or benefit.(ASC 220‐10‐45‐17A)

If an entity uses a separate line item in the income statement to present pension or other postretirement benefit cost components reclassified out of AOCI, the entity is not required to present those items parenthetically. (ASC 220‐10‐45‐17A)

If an entity chooses or is required to place the information reclassified out of AOCI in the notes, it should provide:

 The significant amounts by each component of AOCI,

 A subtotal of each component of AOCI, and

 For those amounts required by other Topics to be reclassified to net income in their entirety in the same reporting period, the line items affected by the reclassification.

If a component is only partially reclassified to net income, entities must cross‐reference to the related footnote for additional information. (ASC 220‐10‐50‐6)

Interim Reporting For interim reporting, entities must present a total for comprehensive income but are not required to present the individual components of OCI. Entities that present two statements in their annual financial reports have the option of using a single‐statement approach in their condensed interim financial statements. Using one statement avoids the presentation of a separate statement of comprehensive income that contains only one line item for total comprehensive income. (ASC 220‐10‐45‐18) Nonpublic entities are not required to meet the requirements for reclassifications in interim reporting. (ASC 220‐10‐45‐18B)