Video: Income statement / statement of profit or loss - Practice Questions

In this lesson, Nick Palazzolo, CPA, tackles practice questions related to the income statement and other comprehensive income (OCI). He kicks off by clarifying the items that would not be included in OCI, using examples such as pension adjustments and unrealized gains or losses on various securities to illustrate points of confusion that can arise during the exam. With clear explanations and charts, Nick demystifies how to distinguish between similar-sounding items and emphasizes the importance of getting comfortable with exam language and formats. Additionally, he explores how net income transitions into the retained earnings account and what impacts this, such as issuing dividends. This engaging walk-through of practice questions is rich with explanations that simplify complex concepts and offers strategies to effectively approach similar questions on the exam.

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Video Transcript

Instructor: Nick Palazzolo

Nick Palazzolo is head instructor of ExamPrep.ai CPA Review. Nick's teaching style is engaging & upbeat, combining practical Big 4 tax & assurance expertise with years of 1-on-1 coaching. His lessons are concise and emphasize what you need to know to pass. Whether you're a recent grad or working full-time, we’re confident you can conquer your CPA exams with Nick’s review.

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Welcome all of you hard workers to our income statement or statement of profit or loss, depending on what sort of framework are we looking at. Is it corporate, not-for-profit, government? What is it? Well, in this case, pretty much going to be income statement questions, most prevalent on the exam here. In this case, we're going to ask ourselves, which of the following items would not be included in other comprehensive income? If you are familiar from our lecture, take a look here. We've got a nice chart for you. The statement of comprehensive income is made up of net income and OCI, other comprehensive income. Obviously, net income, income statement, this is just normal. This is normal. You're probably quite familiar with this before the exam. Before studying, you might not have been as familiar with what you see here, the OCI or other comprehensive income. As we mentioned, these are generally items that don't really reflect how the company is doing operationally. For example, pension adjustments, if your pension plan is doing really well, good for you, but you shouldn't reflect that in your net income because it doesn't accurately represent how your sales are doing or your expenses. Same with a lot of these other items. Now, these questions are going to be as simple as memorize the chart, memorize what's included and not, and answer them. The reason we give you one of these is because many on the exam will just be as simple as this. It's, okay, what is not included, what is included, and the possible answers will be close. For example, which is not included in OCI? Well, pension, prior service costs, or other credits. It says pension adjustments, so you got to get familiar with how they're going to display

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