Question

Question: Bill Haley is learning about pension accounting. He is convinced that in years when companies record liability gains and losses, total comprehensive income will not be affected. Is Bill correct? Explain.

Short answer

Answer

According to the stated situation, the assumption ofBill is not correct.

Step-by-step solution

Meaning of Comprehensive Income

Comprehensive income refers to the variations arising in an accounting period and includes the changes in the equity of the companyexcept for investments made by owners in terms of the liquid form of assets and distributions to them in terms of dividends.

Comment on Bill’s assumption

The assumption of Bill is incorrect.

In theaccounting process, the companies record liability gains and losses in the total comprehensive income. Also,the total comprehensive income is affected by the recording of liability gains and losses linked with pension plans because the gains and losses on pension plan assets are not realized until a future period.