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.

Question

Quizplus · Accepted Answer

Unrealized gains on available-for-sale securities are reported in other comprehensive income net of tax. The after-tax amount of the unrealized gain is $20 million * (1 - 0.30) = $14 million. Therefore, comprehensive income is understated by $14 million.

A Company Failed to Record Unrealized Gains of $20 Million