Which Items Are Not Reported as Extraordinary?

Explanation

An item must be both unusual and infrequent (and material in amount) to be classified as extraordinary.

Under the Generally Accepted Accounting Principles (GAAP), extraordinary items are considered to be rare, significant, and infrequent events or transactions that are outside the ordinary activities of a company. These items are required to be presented separately in the income statement, net of taxes, to provide better transparency to investors and financial statement users.

Let's analyze each answer option to determine which one would not be reported as an extraordinary item:

A. Gain or loss on sale of fixed assets: The gain or loss on the sale of fixed assets is generally considered an ordinary item because it relates to the core activities of a business. It is a result of selling a long-term asset that is used in the normal course of operations. Therefore, this would not be reported as an extraordinary item.

B. Gain or loss from passing of a new law: The gain or loss resulting from the passing of a new law is not considered an extraordinary item. Such gains or losses are typically associated with changes in regulations or legislation that affect a company's operations. While they may have a significant impact on financial results, they are still considered part of the ordinary activities of the business.

C. Gain or loss from early retirement of debt: The gain or loss from the early retirement of debt is also not classified as an extraordinary item. It arises from decisions made by management regarding the refinancing or restructuring of the company's debt obligations. Although it may have a material effect on the financial statements, it is not considered rare, infrequent, or unusual.

D. Uninsured loss from a flood: An uninsured loss from a flood could potentially be classified as an extraordinary item. Extraordinary items are typically events that are both unusual and infrequent. If a flood is deemed to be an extraordinary event, and the loss resulting from the flood is not covered by insurance, then it would be reported separately as an extraordinary item in the income statement.

Based on the analysis above, the answer option that would not be reported as an extraordinary item is A. gain or loss on sale of fixed assets.