Question
Companies must distinguish gains as well as losses that are part of continuing operations from those that fit as discontinued operations or extraordinary items. While this classification does not change overall net income, it can make a change in the impression given to financial statement users who may not read all of the footnoted information. Since income from continuing operations is a required subtotal and widely used by analysts in the place of net income, some companies would prefer to report all gains as part of continuing operations and all losses as a part of extraordinary items or discontinued operations. For the circumstances below, indicate whether a company can report the amount as an extraordinary item or discontinued operation. In some cases, you will have direct evidence to form your conclusion, but in some cases you will have to apply accounting judgment and present your own persuasive support based on the more general definition of extraordinary items or discontinued operations
A snowstorm in Corpus Christi resulted in loss of raw materials that had been stored outside
A company had its foreign plant and equipment expropriated by the foreign government due to nationalization of all mining operations. Can it report an extraordinary loss?
A company had direct losses associated with destruction of property in the World Trade Center on 9/11/2001. Can it report an extraordinary loss?
For each of the following three separate cases, make a recommendation on how ABC Company should recognize the income or loss identified on its annual financial statements. You must provide support for your recommendation using the Codification, including the specific paragraph number(s) and/or glossary entry that supports your position. Your reporting should use the following outline for each item
I) Problem Summary and Solution Recommendation
II) Issues Identified
III) Sources Used
IV) Discussion of Support