During the year 2015,Torino Corporation suffered a $1,200,000 loss when its factory was severely damaged in an earthquake.Assuming the corporate income tax rate is 30%,what amount will Torino report as an extraordinary loss on its income statement for 2015? Assume earthquakes are not common in this area.

Question

Quizplus · Accepted Answer

According to Generally Accepted Accounting Principles (GAAP), extraordinary items are defined as events or transactions that are both infrequent and unusual. Earthquakes are not common, and therefore, the loss suffered by Torino Corporation qualifies as an extraordinary item. The amount reported as the extraordinary loss would be the net of tax expense, which is calculated as follows:

Extraordinary loss = $1,200,000 × 30% = $360,000 
Net extraordinary loss = $1,200,000 − $360,000 = $840,000

Therefore, Torino Corporation should report $840,000 as an extraordinary loss on its income statement for 2015.

During the Year 2015,Torino Corporation Suffered a $1,200,000 Loss When