Cisco System Inc the leading Internet protocol-based networking equipment compan
ID: 2330331 • Letter: C
Question
Cisco System Inc the leading Internet protocol-based networking equipment company, has significant holdings of investment securities. Use the financial information provided to analyze Cisco’s holdings and address the following question:
Determine the effect of changes in fair value on net income and other comprehensive income in fiscal 2013, 2012, and 2011. If unrealized gains and losses on available-for-sale securities were reported in net income rather than other comprehensive income, what would be the effect on net income in fiscal 2013, 2012, and 2011?
At or for the year ended July 27, 2013 July 28, 2012 July 30, 2011
Total Assets $101,191 $91,759 $87,095
Net Income before Taxes $11,227 $10,159 $7,825
Summary of Comprehensive Income
Year Ended July 27, 2013 July 28, 2012 July 30, 2011
Net Income $9,983 $8,041 $6,490
Change in:
Unrealized gains and losses on
Investments, net (37) (78) 154
Derivative instruments 61 (59) (21)
Cumulative translation
Adjustment and other (77) (496) 538
Comprehensive income
(Loss) $9,930 $7,408 $7,161
Explanation / Answer
A comprehensive income statement is used to measure the changes in owner's interest in business by adjusting unrealisable gains and losses.
If unrealised gains and losses on available for sale securities were reported in net income rather than comprehensive income then we need to make the following adjustments since the unrealisable gain and losses need to be adjsuted in cmprehensive income rather than net income.
The reverse adjustments have been made since the unrealised gain and loss adjustments need to be made in comprehensive income and not the net income.
Particulars July 27, 2013 July 28, 2012 July 30,2011 Net Income Before Taxes $11,227 $10,159 $7,825 Unrealised gains & losses on Investments $ 37 $ 78 $ (154) Derivative Instruments $ (61) $ 59 $ 21 Adjustment & Other $ 77 $ 496 $(538) Net profit Before Taxes $11,280 $10,792 $7,154