Which of the following would be reported as an extraordinary item?
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A. B. C. D.C
An item must be both unusual and infrequent (and material in amount) to be classified as extraordinary.
An extraordinary item refers to a significant event or transaction that is both unusual in nature and infrequent in occurrence. According to Generally Accepted Accounting Principles (GAAP), extraordinary items are reported separately on the income statement, below the net income from continuing operations.
Let's analyze each answer choice to determine whether it would be reported as an extraordinary item:
A. Uninsured loss from a flood: This situation represents a loss resulting from a natural disaster, specifically a flood. While the loss may be significant, it is not considered unusual or infrequent for companies operating in areas prone to floods. Therefore, it would not be reported as an extraordinary item.
B. Gain or loss from passing of a new law: The passing of a new law could have various effects on businesses. However, it is unlikely to meet the criteria of being both unusual in nature and infrequent in occurrence. Changes in laws and regulations are a normal part of the business environment, and companies regularly adapt to them. Therefore, this gain or loss would not be reported as an extraordinary item.
C. All of these answers are correct: This choice implies that both A and B would be reported as extraordinary items. However, as explained above, neither A nor B satisfies the criteria for reporting an extraordinary item. Therefore, this answer choice is incorrect.
D. Gain or loss from early retirement of debt: Early retirement of debt refers to a situation where a company repays its debt obligations before their maturity date. This event is not considered unusual or infrequent since companies often take such actions to manage their debt levels or take advantage of favorable interest rates. Hence, the gain or loss from early retirement of debt would not be reported as an extraordinary item.
In conclusion, none of the answer choices would be reported as an extraordinary item. Extraordinary items are reserved for events or transactions that are both unusual in nature and infrequent in occurrence, and none of the scenarios mentioned meet both criteria.