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AICPA Exam CPA-Financial Topic 1 Question 69 Discussion

Actual exam question for AICPA's CPA-Financial exam
Question #: 69
Topic #: 1
[All CPA-Financial Questions]

In September 1996, Koff Co.'s operating plant was destroyed by an earthquake. Earthquakes are rare in the area in which the plant was located. The portion of the resultant loss not covered by insurance was $700,000. Koff's income tax rate for 1996 was 40%. In its 1996 income statement, what amount should Koff report as extraordinary loss?

Show Suggested Answer Hide Answer
Suggested Answer: D

Choice 'd' is correct. The concept of reliability in financial reporting includes; neutrality, representational faithfulness and verifiability.

Choices 'a', 'b', and 'c' are incorrect, per the above.


by Tresa at Apr 23, 2023, 01:34 PM

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Andra
9 days ago
Woah, an earthquake taking out a plant? That's straight out of a disaster movie! But I digress, I'm going with C on this one. The tax effect needs to be factored in.
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Serita
15 days ago
C'mon, this is basic accounting! The extraordinary loss is the $700,000 reduced by the 40% tax rate, which gives us $420,000. Easy peasy!
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Thaddeus
6 days ago
I think the answer is C) $420,000.
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Loreen
28 days ago
Hmm, I'm not sure. The wording of the question is a bit confusing. Does 'extraordinary loss' mean the full $700,000, or just the amount after tax implications? I'll have to think this one through a bit more.
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Nida
3 days ago
C) $420,000
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Amie
6 days ago
I think it's B) $280,000 because that would be the amount after tax implications.
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Mira
10 days ago
I think it's A) $0 because the tax rate is 40% so the extraordinary loss would be after tax.
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Scarlet
10 days ago
A) $280,000
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Reuben
11 days ago
A) $0
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Demetra
1 months ago
I think the answer is D. The entire $700,000 portion of the loss not covered by insurance should be reported as an extraordinary loss, since earthquakes are rare in that area.
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Norah
1 months ago
But the loss not covered by insurance was $700,000, so it should be D) $700,000.
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Jesusita
1 months ago
I disagree, I believe the answer is C) $420,000.
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Norah
1 months ago
I think the answer is D) $700,000.
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a