AICPA Exam CPA-Financial 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

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Clement

1 months 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!

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Margurite

1 days ago

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

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Vilma

1 months 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!

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Lorean

21 days ago

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

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Malcom

1 months ago

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

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Louis

2 months 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.

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Lynsey

19 days ago

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

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Destiny

22 days ago

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

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Refugia

2 months 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.

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Fausto

2 months 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?

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Hubert

2 months 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.

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Evan

2 months ago

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

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