The FASB has identified a limited number of transactions that are recorded in other comprehensive income (OCI) instead of net income (NI). The objective of excluding certain gains and losses from net income is to remove the effect of gains and losses that were deemed to be outside of its core operations or overly volatile, since including these gains and losses may be misleading to users of financial statements. However, while excluded from NI, these potential gains and losses are recorded in OCI and thus are communicated to users of financial statements. Gains and losses included in OCI are said to be “unrealized,” because they have not yet been realized as a component of NI.
The net balance of these “unrealized” gains/losses is called accumulated other comprehensive income (AOCI) and is found in the stockholders’ equity section of the balance sheet. This is because the gains/losses contained in OCI “accumulate” on the balance sheet.
One example we talked about in class is gains and losses on available-for-sale (AFS) securities. If a company holds an investment in securities classified as AFS, any unrealized gains and losses on these securities due to fluctuations in fair value (changes in stock price) are recognized in OCI instead of NI.
Once the AFS securities are sold, the “unrealized” net gain or loss in AOCI is “realized” as a component of NI. You will also see this practice is called “reclassifying” (since we are reclassifying items from OCI to NI) or “recycling” (because the gains and losses are already included in stockholders equity).
Therefore, changes in OCI come from one of two sources: 1) new unrealized gains/losses that are sent to OCI during the year, and 2) gains/losses that have been reclassified out of OCI and sent to NI.
Example:
We start a new company on 1/1/16. On the first day of business, we buy two shares of stock for $50 each.
By 12/31/16, the value of the stock is $70/share. OCI for 2016 is $40 [$20 gain on each share].
Beginning AOCI 0
+ OCI 40
Ending AOCI 40
By 12/31/17, the value of the stock is $60/share. OCI for 2017 is $(20) [$10 loss on each share].
Beginning AOCI 40
+ OCI (20)
Ending AOCI 20
By 12/31/18, the value of the stock is $90/share. On 12/31/18, we sell one of the shares at a $40 dollar gain [$90 selling price – $50 original price].
OCI for 2018 before reclassifications is $60 [$30 gain on each share]. However, we also reclassify a $40 gain from OCI to NI, which effectively reduces OCI.
Beginning AOCI 20
+ OCI (before reclassifications) 60
– Reclassification of gain to NI (40)
Ending AOCI 40
Thus, we have “realized” a $40 gain in net income. The “unrealized” $40 gain remains in AOCI.
Examples of other items that may be included in OCI are:
1) Foreign currency translation gains or losses
2) Pension plan gains or losses
3) Gains/losses from certain derivative instruments
Similar to AFS securities, each of these items can have “unrealized” gains and losses, which are sent to OCI. Also similar to AFS securities, these “unrealized” gains and losses can be “realized” or “reclassified” to net income. However, the point at which they are reclassified may not follow the same rules for AFS securities.
Objective of this project:
1) Gain an understanding of what types of transactions can affect other comprehensive income.
2) Gain an understanding of when unrealized gains/losses included in OCI are reclassified into net income.
3) Learn how to find this information in a company’s financial statement.
4) Develop an opinion on whether the practice of reporting OCI provides more useful information to users of financial statements.
Required:
1. Your group must find a company that reports a non-zero amount of OCI for fiscal years 2013 and 2014 is acceptable. Your group must set up a meeting with me (or come in during office hours) to ensure you pick an appropriate company. One I approve the company you have chosen, download the 10Ks for fiscal years 2013 and 2014.
2. Your group must write a written report that summarizes the following information. All of this information can be found in a company’s 10Ks. The written report should be 2-4 pages in writing (double spaced), but should also include exhibits (screenshots of the financial statements) which do not count against the 2-4 pages.
a. Section 1 – The 10K provides an overview of the company (Item 1). Summarize what this overview tells us. Relevant information should include who and what the company does and the market in which it operates. It may also include recent events, competition, seasonal factors, etc.
b. Section 2 – Summarize the information provided in the Management Discussion and Analysis section of the 10k (Item 7).
c. Section 3 – Provide a screenshot of a) the statement of stockholders’ equity, b) the table that provides detail on changes in AOCI for the year.
d. Section 4 – Summarize the unrealized gains/losses that were included OCI for fiscal year 2014 and provide a brief description of what these items are.
e. Section 5 – Summarize the gains/losses that were reclassified from AOCI to NI for fiscal year 2014. Provide a brief description of why these gains/losses were reclassified to NI and describe the effect these gains/losses had on net income.
f. Section 6 – In your group’s opinion, does the treatment of these OCI items improve the information being provided to investors/creditors? Or do you think it would be better to simply include all gains/losses directly in net income?
Note: In your submission, please put a header for each of the six requirements above. Please put all exhibits (screenshots) at the end of the write-up, and reference them in the write-up when needed.
3. Your group must do a 7-10 minute in-class presentation summarizing the results of your written report. Each student in the group should cover at least one of the sections in the write-up. Recommended presentation format is as follows.
a. Section 1 (1-1.5 minutes)
b. Section 2 (1-1.5 minutes)
c. Sections 3-5 (4-6 minutes)
d. Section 6 (30 seconds to a minute)
Other Important Information
The written report is due Friday December 11th by 11:45pm (via blackboard).
The order of the presentations will be determined randomly once groups are finalized. Presentations will take place on Monday, December 7th, Wednesday, December 9th, and Friday, December 11th. Business casual dress is required for presenting groups.
Attendance is required for today and for all presentation days unless there is a valid university excuse. Unexcused absences will result in a point deduction (3 points/day).
No two groups can choose the same company, which will be granted at a first-come, first-serve basis. Your group must inform me of your choice of company by Friday, November 6th. If you need help finding a company, please come into my office hours and I would be glad to assist.
Grading will be as follows:
Written Report: 25 points
In-class presentation: 15 points
Total: 40 points

Anonymous peer evaluation forms will be filled out once projects are completed. There will be a point deduction for lack of effort (for the problem student’s grade only).

Instructions on how to look up 10K:
Option 1: SEC Electronic Data Gathering, Analysis, and Retrieval system (EDGAR)
1) Search for “SEC EDGAR” in google.
2) Click on link titled “SEC.gov | Company Search Page”
3) Type company name in search bar
4) Type “10-k” in filing type filter
Option 2: Google
1) Google the name of the company in which you are interested + SEC filings. For example “Verizon SEC filings.”
2) A link should be provided taking you to a page on the company website containing the SEC filings.
3) Choose “10-k” or “annual report” in the filing type filter

The FASB has identified a limited number of transactions that are recorded in other comprehensive income (OCI) instead of net income (NI). The objective of excluding certain gains and losses from net income is to remove the effect of gains and losses that were deemed to be outside of its core operations or overly volatile, since including these gains and losses may be misleading to users of financial statements. However, while excluded from NI, these potential gains and losses are recorded in OCI and thus are communicated to users of financial statements. Gains and losses included in OCI are said to be “unrealized,” because they have not yet been realized as a component of NI.
The net balance of these “unrealized” gains/losses is called accumulated other comprehensive income (AOCI) and is found in the stockholders’ equity section of the balance sheet. This is because the gains/losses contained in OCI “accumulate” on the balance sheet.
One example we talked about in class is gains and losses on available-for-sale (AFS) securities. If a company holds an investment in securities classified as AFS, any unrealized gains and losses on these securities due to fluctuations in fair value (changes in stock price) are recognized in OCI instead of NI.
Once the AFS securities are sold, the “unrealized” net gain or loss in AOCI is “realized” as a component of NI. You will also see this practice is called “reclassifying” (since we are reclassifying items from OCI to NI) or “recycling” (because the gains and losses are already included in stockholders equity).
Therefore, changes in OCI come from one of two sources: 1) new unrealized gains/losses that are sent to OCI during the year, and 2) gains/losses that have been reclassified out of OCI and sent to NI.
Example:
We start a new company on 1/1/16. On the first day of business, we buy two shares of stock for $50 each.
By 12/31/16, the value of the stock is $70/share. OCI for 2016 is $40 [$20 gain on each share].
Beginning AOCI 0
+ OCI 40
Ending AOCI 40
By 12/31/17, the value of the stock is $60/share. OCI for 2017 is $(20) [$10 loss on each share].
Beginning AOCI 40
+ OCI (20)
Ending AOCI 20
By 12/31/18, the value of the stock is $90/share. On 12/31/18, we sell one of the shares at a $40 dollar gain [$90 selling price – $50 original price].
OCI for 2018 before reclassifications is $60 [$30 gain on each share]. However, we also reclassify a $40 gain from OCI to NI, which effectively reduces OCI.
Beginning AOCI 20
+ OCI (before reclassifications) 60
– Reclassification of gain to NI (40)
Ending AOCI 40
Thus, we have “realized” a $40 gain in net income. The “unrealized” $40 gain remains in AOCI.
Examples of other items that may be included in OCI are:
1) Foreign currency translation gains or losses
2) Pension plan gains or losses
3) Gains/losses from certain derivative instruments
Similar to AFS securities, each of these items can have “unrealized” gains and losses, which are sent to OCI. Also similar to AFS securities, these “unrealized” gains and losses can be “realized” or “reclassified” to net income. However, the point at which they are reclassified may not follow the same rules for AFS securities.
Objective of this project:
1) Gain an understanding of what types of transactions can affect other comprehensive income.
2) Gain an understanding of when unrealized gains/losses included in OCI are reclassified into net income.
3) Learn how to find this information in a company’s financial statement.
4) Develop an opinion on whether the practice of reporting OCI provides more useful information to users of financial statements.
Required:
1. Your group must find a company that reports a non-zero amount of OCI for fiscal years 2013 and 2014 is acceptable. Your group must set up a meeting with me (or come in during office hours) to ensure you pick an appropriate company. One I approve the company you have chosen, download the 10Ks for fiscal years 2013 and 2014.
2. Your group must write a written report that summarizes the following information. All of this information can be found in a company’s 10Ks. The written report should be 2-4 pages in writing (double spaced), but should also include exhibits (screenshots of the financial statements) which do not count against the 2-4 pages.
a. Section 1 – The 10K provides an overview of the company (Item 1). Summarize what this overview tells us. Relevant information should include who and what the company does and the market in which it operates. It may also include recent events, competition, seasonal factors, etc.
b. Section 2 – Summarize the information provided in the Management Discussion and Analysis section of the 10k (Item 7).
c. Section 3 – Provide a screenshot of a) the statement of stockholders’ equity, b) the table that provides detail on changes in AOCI for the year.
d. Section 4 – Summarize the unrealized gains/losses that were included OCI for fiscal year 2014 and provide a brief description of what these items are.
e. Section 5 – Summarize the gains/losses that were reclassified from AOCI to NI for fiscal year 2014. Provide a brief description of why these gains/losses were reclassified to NI and describe the effect these gains/losses had on net income.
f. Section 6 – In your group’s opinion, does the treatment of these OCI items improve the information being provided to investors/creditors? Or do you think it would be better to simply include all gains/losses directly in net income?
Note: In your submission, please put a header for each of the six requirements above. Please put all exhibits (screenshots) at the end of the write-up, and reference them in the write-up when needed.
3. Your group must do a 7-10 minute in-class presentation summarizing the results of your written report. Each student in the group should cover at least one of the sections in the write-up. Recommended presentation format is as follows.
a. Section 1 (1-1.5 minutes)
b. Section 2 (1-1.5 minutes)
c. Sections 3-5 (4-6 minutes)
d. Section 6 (30 seconds to a minute)
Other Important Information
The written report is due Friday December 11th by 11:45pm (via blackboard).
The order of the presentations will be determined randomly once groups are finalized. Presentations will take place on Monday, December 7th, Wednesday, December 9th, and Friday, December 11th. Business casual dress is required for presenting groups.
Attendance is required for today and for all presentation days unless there is a valid university excuse. Unexcused absences will result in a point deduction (3 points/day).
No two groups can choose the same company, which will be granted at a first-come, first-serve basis. Your group must inform me of your choice of company by Friday, November 6th. If you need help finding a company, please come into my office hours and I would be glad to assist.
Grading will be as follows:
Written Report: 25 points
In-class presentation: 15 points
Total: 40 points

Anonymous peer evaluation forms will be filled out once projects are completed. There will be a point deduction for lack of effort (for the problem student’s grade only).

Instructions on how to look up 10K:
Option 1: SEC Electronic Data Gathering, Analysis, and Retrieval system (EDGAR)
1) Search for “SEC EDGAR” in google.
2) Click on link titled “SEC.gov | Company Search Page”
3) Type company name in search bar
4) Type “10-k” in filing type filter
Option 2: Google
1) Google the name of the company in which you are interested + SEC filings. For example “Verizon SEC filings.”
2) A link should be provided taking you to a page on the company website containing the SEC filings.
3) Choose “10-k” or “annual report” in the filing type filter