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NEW QUESTION 41
In September 1996, Koff Co.'s operating plant was destroyed by an earthquake. Earthquakes are rare in
the area in which the plant was located. The portion of the resultant loss not covered by insurance was
$ 700,000. Koff's income tax rate for 1996 was 40%. In its 1996 income statement, what amount should
Koff report as extraordinary loss?
- A. $280,000
- B. $420,000
- C. $700,000
- D. $0
Answer: B
Explanation:
Choice "c" is correct. For a loss to be reported as an extraordinary loss, the event causing the loss must
be both unusual in nature and infrequent in occurrence. The earthquake in this case does meet these
criteria so the loss is reported net of income tax effect as an extraordinary loss of
$ 420,000 (60% of the total $700,000 loss). APB 30.11, .19-.26
Choice "a" is incorrect. Review the criteria for reporting an extraordinary loss.
Choice "b" is incorrect. This is the tax effect of the loss. Review your calculations.
Choice "d" is incorrect. It is not appropriate to report the full loss as an extraordinary loss.
NEW QUESTION 42
An extraordinary gain should be reported as a direct increase to which of the following?
- A. Income from discontinued operations, net of tax.
- B. Net income.
- C. Income from continuing operations, net of tax.
- D. Comprehensive income.
Answer: B
Explanation:
Choice "a" is correct. Extraordinary items are reported as a component of net income, after income from
continuing operations and discontinued operations.
Choice "b" is incorrect. An extraordinary gain (or loss) only indirectly affects comprehensive income as a
component of net income.
Choice "c" is incorrect. Extraordinary items are reported net of tax after income from continuing operations
and discontinued operations.
Choice "d" is incorrect. Extraordinary items are reported net of tax after income from continuing
operations and discontinued operations.
NEW QUESTION 43
Envoy Co. manufactures and sells household products. Envoy experienced losses associated with its
small appliance group. Operations and cash flows for this group can be clearly distinguished from the rest
of Envoy's operations. Envoy plans to sell the small appliance group with its operations. What is the
earliest point at which Envoy should report the small appliance group as a discontinued operation?
- A. When Envoy receives an offer for the segment.
- B. When Envoy sells the majority of the assets of the segment.
- C. When Envoy classifies it as held for sale.
- D. When Envoy first sells any of the assets of the segment.
Answer: C
Explanation:
Choice "a" is correct. The earliest period that a component of an entity can be reported in discontinued
operations is when the component meets the following "held for sale" criteria:
1 . Management commits to a plan to sell the component.
2 . The component is available for immediate sale in its present condition.
3 . An active program to locate a buyer has been initiated.
4 . The sale of the component is probable and the sale is expected to be completed within one year.
5 . The sale of the component is being actively marketed.
6 . It is unlikely that significant change to the plan to sell will be made or that the plan will be withdrawn.
Choices "b", "c", and "d" are incorrect, per the Explanation: above.
NEW QUESTION 44
In 1990, Teller Co. incurred losses arising from its guilty plea in its first antitrust action, and from a
substantial increase in production costs caused when a major supplier's workers went on strike.
Which of these losses should be reported as an extraordinary item?
- A. Option D
- B. Option B
- C. Option C
- D. Option A
Answer: C
Explanation:
Choice "c" is correct. Yes - No. Rule: Losses arising from a company's first (and probably "last")
"anti-trust" action are unusual and extraordinary and should be reported as an extraordinary item. Losses
resulting from additional costs caused by a strike at a major supplier or even at one's own company are
not extraordinary and should be disclosed as a separate component of "income from continuing
operations."
NEW QUESTION 45
The following costs were incurred by Griff Co., a manufacturer, during 1992:
What amount of these costs should be reported as general and administrative expenses for 1992?
- A. $810,000
- B. $635,000
- C. $550,000
- D. $260,000
Answer: D
Explanation:
Choice "a" is correct. General and administrative expenses include:
Freight-in is part of cost of sales; freight-out is a selling expense; and sales salaries are selling expenses.
Choice "b" is incorrect. Freight-in is part of cost of inventory; freight-out is a selling expense; and sales
salaries are selling expenses.
Choice "c" is incorrect. Freight-in is part of cost of inventory; freight-out is a selling expense; and sales
salaries are selling expenses.
Choice "d" is incorrect. Freight-in is part of cost of inventory; freight-out is a selling expense; and sales
salaries are selling expenses.
NEW QUESTION 46
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