CFA Practice Question

CFA Practice Question

Simon Steel Inc. had the following unusual financial events occur this year:

  • Bonds payable were retired 5 years before their scheduled maturity, resulting in a $260,000 gain.
  • A steel-forming segment suffered $255,000 in losses from hurricane damage. This was the fourth similar loss sustained in a 5-year period at that location.
  • A segment of Simon's operations, steel transportation, was sold at a net loss of $350,000. This was Simon's first divestiture of one of its operating segments.

What amount should be disclosed as the gain (loss) from extraordinary items for this year?
A. $0
B. $260,000
C. $(350,000)
Explanation: SFAS No. 145 requires any gain or loss from early retirement of debt to be treated as part of continuing operations.
For all other transactions to be classified as extraordinary items, they must be both unusual and infrequent. In this case, none of these gains or losses qualify.

User Contributed Comments 9

User Comment
humphrey 2 is not infrequent, and 3 is "gains of losses from disposal of a portion of a business segment". Both are not extraordinary items.
jason 'Before income taxes' is not 'above line': the 'line' here means recurring operating earnings. 'below the line' items are one time events which donot occur in every period.
chuong 1- is CFI and not unusual in nature -> can't be in Accting for non operating item
2- is high frequent
3- is Discontinued operation not Extraodiary Gains/losses
VBday Ohhhhh... so gains/losses from disposal of a business segment isn't considered Extraordinary gains/losses, but is treated the same way (below the line)
siehyun So confusing to determine between extraordinary and infrequent or unusal items
ruckmani why is 1 not extraordinary?? can someone explain???
ruckmani ok got it.."Note that gains and losses from the early retirement of debt were treated as extraordinary items but SFAS No. 145 (2002) now requires them to be treated as part of continuing operations."
jackwez key item on number three... it must be DISCONTINUED.. vs disposal of an on going segment... to be listed seperate.
Skrills thanks jackwez
You need to log in first to add your comment.