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Finance & Accounting
Pages 3 (753 words)
Date: To: INTRUSCTOR’S NAME Chief Financial Officer (CFO) Carter Hawley Hale Stores (CHHS) Inc. From: Your Name Controller CHHS Re: Recommended Reporting of the Losses Suffered from the Earthquake on the Income Statement On October 17, 1989, a Richter scale earthquake caused significant amounts of monetary damage to the San Francisco Bay area.
Option #1 is to report it as an extraordinary loss separate from operations. And Option #2 is to report the loss in a continuing operation but treat it as a separate part in the income statement. These two options would require proper disclosure in our footnotes of the event. The reporting of extraordinary items (losses) has an advantage, that is, they are not included under normal operating income which will be construed by stakeholders and creditors as items that will not happen in the foreseeable future. Hence, the event’s effects on net income are not in any way reflects the true status of the business operation since it is not a recurring event. According to Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 225-20-45-2 “extraordinary items are events and transactions that are distinguished by their unusual and by infrequency of their occurrence. Thus, both of the following criteria should be met to classify an event or transaction as an extraordinary item”. CHHS has to decide whether the earthquake meets both criteria. ...
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