Romulan Corporation incurred the following losses during 2011:

Ignoring income taxes, what amount of loss should Romulan report as extraordinary on its annual income statement?

Question

Romulan Corporation incurred the following losses during 2011:

Ignoring income taxes, what amount of loss should Romulan report as extraordinary on its annual income statement?

Quizplus · Accepted Answer

An extraordinary item is material in amount and unusual in nature, and is shown separately on the income statement net of tax. The insurance proceeds of $170,000 are considered unusual in nature because they result from a nonrecurring event. Therefore, the total amount of the loss from the fire and the insurance reimbursement ($300,000 – $170,000) is $130,000. Since this amount exceeds 10% of Romulan’s pre-tax income, it qualifies as an extraordinary item. Therefore, Romulan should report $150,000 as an extraordinary loss on its income statement ($130,000 loss plus $20,000 loss from disposal of equipment).

Romulan Corporation Incurred the Following Losses During 2011