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Question 8: During 1990, Fuqua Steel Co. had the following unusual financial events occur:
. Bonds payable were retired five years before their scheduled maturity, resulting in a $260,000 gain.
Fuqua has frequently retired bonds early when interest rates declined significantly.
. A steel forming segment suffered $255,000 in losses due to hurricane damage. This was the fourth
similar loss sustained in a 5-year period at that location.
. A component of Fuqua's operations, steel transportation, was sold at a net loss of $350,000.
This was Fuqua's first divestiture of one of its operating segments.
Before income taxes, what amount should be disclosed as the gain (loss) from extraordinary items in
1 990?
A. $0
B. $5,000
C. $(90,000)
D. $(350,000)
Correct Answer: A
Explanation:
Choice "a" is correct. $0. Note: The sale of the steel transportation component resulted in a loss from
discontinued operations and is reported after "income from continuing operations." The steel
forming
segment's hurricane damage (4th in 5 years) of $255,000 is only "unusual in nature" and does not
occur
infrequently, therefore, it is not an "extraordinary item," and should be reported separately as a
component of "income from continuing operations." The retirement of debt, although unusual, is not
infrequent for the company; therefore, the gain does not qualify for classification as an extraordinary
item
per APBO No. 30 (and SFAS No. 145).