AICPA CPA-Financial Exam - Topic 1 Question 87 Discussion

Actual exam question for AICPA's CPA-Financial exam

Question #: 87
Topic #: 1

During 1990, Fuqua Steel Co. had the following unusual financial events occur:

* Bonds payable were retired five years before their scheduled maturity, resulting in a $260,000 gain. Fuqua has frequently retired bonds early when interest rates declined significantly.

* A steel forming segment suffered $255,000 in losses due to hurricane damage. This was the fourth similar loss sustained in a 5-year period at that location.

* A component of Fuqua's operations, steel transportation, was sold at a net loss of $350,000.

This was Fuqua's first divestiture of one of its operating segments.

Before income taxes, what amount should be disclosed as the gain (loss) from extraordinary items in 1990?

A$0

B$5,000

C$(90,000)

D$(350,000)

Show Suggested Answer

Suggested Answer: B

Choice 'B' is correct. If comparative FS are issued, restate prior year's FS. If comparative FS are not issued, restate prior year-end's retained earnings account by 'adjusting' (net of tax) the opening balance of the current retained earnings statement.

by Desmond at May 10, 2024, 05:13 AM

Limited Time Offer

25%

Off

Get Premium CPA-Financial Questions as Interactive Web-Based Practice Test or PDF

Contribute your Thoughts:

Submit Cancel

Lynelle

7 months ago

So, total loss is $90,000, right?

upvoted 0 times

...

Felix

8 months ago

Not sure if the divestiture should count as extraordinary.

upvoted 0 times

...

Mabel

8 months ago

Wait, they had hurricane damage again? That's rough!

upvoted 0 times

...

Catalina

8 months ago

I think the losses outweigh the gains here.

upvoted 0 times

...

Merilyn

8 months ago

The bond gain offsets some losses, but not all.

upvoted 0 times

...

Lili

9 months ago

I recall a practice question where we had to calculate extraordinary items, and I think we included similar losses. This one seems tricky, though!

upvoted 0 times

...

Shizue

9 months ago

I feel like the total impact here is negative, especially with the losses from the hurricane and the divestiture. I think I might lean towards option C.

upvoted 0 times

...

Devora

9 months ago

I'm a bit confused about the bond retirement gain. I thought gains from early retirement were usually not considered extraordinary.

upvoted 0 times

...

Roosevelt

9 months ago

I remember we discussed how extraordinary items are typically those that are both unusual and infrequent, so I think the hurricane loss might qualify.

upvoted 0 times

...

Irma

9 months ago

Okay, I think I've got it. The bond retirement gain of $260,000, the hurricane loss of $255,000, and the segment sale loss of $350,000 all need to be netted out. That gives a total extraordinary loss of $345,000.

upvoted 0 times

...

Ricki

9 months ago

I've got a strategy for this. First, I'll identify the extraordinary items and their amounts. Then I'll net them out to get the overall extraordinary gain or loss. Shouldn't be too hard if I break it down step-by-step.

upvoted 0 times

...

Rosann

9 months ago

I'm a bit confused by the wording here. Does "before income taxes" mean we need to calculate the amount before or after taxes? That could make a difference in the final answer.

upvoted 0 times

...

Kristin

9 months ago

Okay, let's see. The bond retirement resulted in a gain, but the hurricane damage and the segment sale both resulted in losses. I think I need to net those out to get the final extraordinary gain or loss.

upvoted 0 times

...

Devora

9 months ago

Hmm, this seems like a tricky one. I'll need to carefully analyze the different events and their impact on the company's financials.

upvoted 0 times

...

Lorrine

9 months ago

This looks like a straightforward question about NIACAP certification levels. I'll start by reading through the options carefully and selecting the ones that seem most relevant.

upvoted 0 times

...

Dorothy

10 months ago

Hmm, I'm a bit unsure on this one. I know TOGAF has a lot of different reference models and frameworks, but I can't quite recall which one is specifically for establishing an architecture function. I'll have to think this through carefully.

upvoted 0 times

...

Erick

10 months ago

This one seems pretty straightforward. I'm pretty confident the answer is Advanced planning and scheduling.

upvoted 0 times

...

Clement

1 year ago

Wait, did they just say 'Fuqua Steel Co.'? Whoever came up with that name must have been having a seriously good day. Anyway, back to the question - B) $5,000 seems to be the only logical choice here. Gotta love these accounting brain teasers!

upvoted 0 times

Hildegarde

1 year ago

I'm sticking with B) $5,000, the gain from retiring bonds early seems to offset some of the losses mentioned.

upvoted 0 times

...

Rickie

1 year ago

I disagree, I believe it's D) $(350,000) because of the significant loss from selling the steel transportation segment.

upvoted 0 times

...

Margurite

1 year ago

I think it's C) $(90,000), considering the losses from the hurricane damage and the sale of the steel transportation segment.

upvoted 0 times

...

Vilma

1 year ago

Alright, time to put on my accountant hat. Hmm, let's see... The bond retirement gain is the only thing that's truly out of the ordinary, so that's gotta be the answer. B) $5,000 it is, easy peasy!

upvoted 0 times

Ira

1 year ago

I see your point, but I still think it's B) $5,000 based on the information provided.

upvoted 0 times

...

Joanna

1 year ago

I'm leaning towards C) $(90,000) because the losses from hurricane damage and the sale of steel transportation should be considered as well.

upvoted 0 times

...

Lorean

1 year ago

I disagree, I believe it's B) $5,000 since the bond retirement gain is an unusual event.

upvoted 0 times

...

Malcom

1 year ago

I think it's A) $0 because the bond retirement gain is not considered an extraordinary item.

upvoted 0 times

...

Louis

1 year ago

Whoa, hold on a second. This is like a financial Rubik's cube! Let me see... Okay, the hurricane losses and divestiture are just regular operating stuff, so they don't count. But that bond retirement gain is the only truly extraordinary item here. B) $5,000 is the way to go, my friends.

upvoted 0 times

Lynsey

1 year ago

Yeah, B) $5,000 seems like the correct amount to disclose as the gain from extraordinary items.

upvoted 0 times

...

Destiny

1 year ago

I agree, the bond retirement gain is the only extraordinary item here.

upvoted 0 times

...

Refugia

1 year ago

Hmm, this one's tricky. Gotta remember that extraordinary items are, well, extraordinary. The hurricane damage and divestiture losses don't seem to fit that bill, so I'm going with B) $5,000 - the net gain from the early bond retirement.

upvoted 0 times

...

Fausto

1 year ago

I'm not sure about this one. Can someone explain why the gain from bond retirement and losses from hurricane damage are considered extraordinary items?

upvoted 0 times

...

Hubert

1 year ago

I agree with Evan. The gain from bond retirement and losses from hurricane damage are unusual and infrequent, so they should be disclosed as extraordinary items.

upvoted 0 times

...

Evan

1 year ago

I think the answer is C) $(90,000). The bond retirement gain and hurricane losses are considered extraordinary items.

upvoted 0 times

...