Which of the following would not be reported as an extraordinary item?
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A. B. C. D.A
An item must be both unusual and infrequent (and material in amount) to be classified as extraordinary.
Under the Generally Accepted Accounting Principles (GAAP), an extraordinary item refers to an event or transaction that is both unusual in nature and infrequent in occurrence. These items are considered to be outside the normal business operations and are typically reported separately on the income statement to provide a clearer picture of the company's ongoing performance.
Now let's evaluate each answer choice to determine which one would not be reported as an extraordinary item:
A. Gain or loss on sale of fixed assets: This item does not meet the criteria for an extraordinary item. Gains or losses on the sale of fixed assets are considered part of a company's normal business operations and are reported as part of the regular income from continuing operations. They are not considered unusual or infrequent.
B. Gain or loss from passing of a new law: This item also does not meet the criteria for an extraordinary item. Although the passing of a new law can have an impact on a company's financials, it is not considered an unusual or infrequent event. Any gain or loss resulting from the passing of a new law would be accounted for as part of the regular income from continuing operations.
C. Gain or loss from early retirement of debt: Similar to the previous choices, the gain or loss from early retirement of debt is not classified as an extraordinary item. While it may have a significant impact on a company's financials, it is a result of a management decision and is considered within the normal course of business operations.
D. Uninsured loss from a flood: This item has the potential to be reported as an extraordinary item. Natural disasters, such as floods, are generally considered unusual in nature and infrequent in occurrence. However, it is important to note that whether this specific loss would be classified as extraordinary depends on whether it meets the definition of an extraordinary item under the applicable accounting standards. If the loss is deemed to be unusual and infrequent, it would be reported separately as an extraordinary item on the income statement.
Based on the above analysis, the answer choice that would not be reported as an extraordinary item is B. gain or loss from passing of a new law.