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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?
Suggested Answer: D
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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.
39 comments · newest first
AL
Aliza
11 months ago
Yeah, I agree with Jody on this one!
AR
Arthur
11 months ago
Wait, are we sure about the tax rate? Seems off.
FR
Freeman
12 months ago
Definitely $280,000, right? That's the net loss.
JO
Jody
12 months ago
I think it should be $420,000 after taxes.
LA
Layla
12 months ago
The loss is $700,000, but tax affects it.
RE
Reena
1 year ago
If I recall correctly, the extraordinary loss should be the full amount of the loss, but I’m confused about how taxes factor into this.
GI
Gianna
1 year ago
I feel like there was a similar practice question about a natural disaster, and I think the extraordinary loss was calculated differently.
MI
Mi
1 year ago
I think we might need to calculate the after-tax loss, which would be $700,000 minus the tax benefit.
RO
Rolf
1 year ago
I remember we discussed extraordinary losses in class, but I'm not sure if we include the tax effect in the amount reported.
MA
Marsha
1 year ago
Okay, I think I've got this. I'll start by finding the annual depreciation expense, then calculate the incremental revenues and expenses, and finally apply the tax rate to get the after-tax cash flow.
LO
Louisa
1 year ago
Hmm, I'm not 100% sure about this one. I think it might be B, "application-hosting", but I'll have to double-check the Cisco documentation to be certain.
MI
Mireya
1 year ago
I've got this! The correct answer is C - the inability to control access to company data if the device is stolen or lost. That's the biggest security risk with BYOD.
TH
Theodora
1 year ago
Okay, this seems straightforward. I think I can handle replacing the nonbreaking spaces in the document.
BO
Bobbie
1 year ago
I remember we discussed that working overtime typically increases utilization, not decreases it. So maybe I need to think about the other options.
AN
Andra
1 year 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.
RO
Rory
1 year ago
I agree with you, C seems like the right choice considering the tax implications.
JO
Johnson
1 year ago
I'm leaning towards B, $280,000 seems like a reasonable amount for an extraordinary loss.
LA
Lashandra
1 year ago
I think it's D, the full $700,000. It was a rare event after all.
SE
Serita
1 year 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!
FR
Freeman
1 year ago
Oh, I see now. Thanks for the explanation!
KE
Keneth
1 year ago
That's correct! It's the $700,000 reduced by the 40% tax rate.
TH
Thaddeus
1 year ago
I think the answer is C) $420,000.
LO
Loreen
1 year 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.
AL
Albina
1 year ago
I'm not sure, but I think it might be B because the tax rate would only apply to the portion not covered by insurance.
BU
Bulah
1 year ago
B) $280,000
DO
Dorian
1 year ago
I think it's A because the tax rate would reduce the amount reported as extraordinary loss.
AL
Alethea
1 year ago
A) $0
CH
Christiane
1 year ago
Hmm, that's a good point. I'm not entirely sure now.
CA
Carissa
1 year ago
But wouldn't the extraordinary loss be the full $700,000 before tax?
MA
Markus
1 year ago
I believe it's C) $420,000 because that would be the full amount before tax.
NI
Nida
1 year ago
C) $420,000
AM
Amie
1 year ago
I think it's B) $280,000 because that would be the amount after tax implications.
MI
Mira
1 year ago
I think it's A) $0 because the tax rate is 40% so the extraordinary loss would be after tax.
SC
Scarlet
1 year ago
A) $280,000
RE
Reuben
1 year ago
A) $0
DE
Demetra
2 years 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.
NO
Norah
2 years ago
But the loss not covered by insurance was $700,000, so it should be D) $700,000.
JE
Jesusita
2 years ago
I disagree, I believe the answer is C) $420,000.
NO
Norah
2 years ago
I think the answer is D) $700,000.