Chap020 (accounting) 74 - investments Its tax rate is 30 As...

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77. A company failed to record unrealized gains of $20 million on its available for sale security investments. Its tax rate is 30%. As a result of this error, comprehensive income would be: A. Understated by $14 million. B. Understated by $6 million. C. Understated by $20 million. D. Unaffected. Unrealized gains on securities available for sale are reported net of tax in other comprehensive income. AACSB: Analytic Bloom's: Analysis Learning Objective: 20-06 Understand and apply the four-step process of correcting and reporting errors; regardless of the type of error or the timing of its discovery. Level of Learning: Hard 78. A company failed to record unrealized gains of $20 million on its trading security
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Unformatted text preview: investments. Its tax rate is 30%. As a result of this error, total shareholders' equity would be: A. Understated by $14 million. B. Understated by $7 million. C. Understated by $20 million. D. Unaffected. Unrealized gains on trading securities are included in earnings, so retained earnings would be increased by the after-tax amount: $20,000,000 x (1 - 30%) = $14,000,000 . AACSB: Analytic Bloom's: Analysis Learning Objective: 20-06 Understand and apply the four-step process of correcting and reporting errors; regardless of the type of error or the timing of its discovery. Level of Learning: Hard...
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