AICPA Exam CPA-Financial Topic 3 Question 20 Discussion

Choice 'c' is correct. Reclassification entries may be necessary to avoid double counting an item previously reported as comprehensive income (i.e., unrealized gain), which are now reported as part of net income (i.e., realized gain).

Choice 'a' is incorrect. The classification of assets as current or non-current has no bearing on reporting comprehensive income.

Choice 'b' is incorrect. All items of comprehensive income must be shown net of the related tax effects, but it is not done with reclassification adjustments.

Choice 'd' is incorrect. Transactions with shareholders such as paying dividends and issuing capital stock are not included in comprehensive income, thus, reclassification adjustments are not necessary to exclude them.