[sandy]

During year 1 both Raim co and Cane Co suffered losses due to the flooding of the Mississippi River. Raim is located two miles from the river and sustains flood losses every two to three years. Cane, which has been located fifty miles from the river for the past twenty years, has never before had flood losses. How should the flood losses be reported in each company’s year 1 income statement?

Raim Cane

a. As a component of income from As an extraordinary item

Continuing operations.

b. As a component of income from As a component of income from

Continuing operations continuing operations.

C . As an extraordinary item As a component of income from continuing operations.

d. As an extraordinary item As an extraordinary item

The correct answer is A.

FASB has eliminated the concept of Extraordinary item recently. Now, do we select answer B instead of A?

This is the link for FASB update.

https://www.fasb.org/resources/ccurl/147/382/ASU%202015-01.pdf

Thank you,

[sandy]

During year 1 both Raim co and Cane Co suffered losses due to the flooding of the Mississippi River. Raim is located two miles from the river and sustains flood losses every two to three years. Cane, which has been located fifty miles from the river for the past twenty years, has never before had flood losses. How should the flood losses be reported in each company’s year 1 income statement?

Raim Cane

a. As a component of income from As an extraordinary item

Continuing operations.

b. As a component of income from As a component of income from

Continuing operations continuing operations.

C. As an extraordinary item As a component of income from

Continuing operations.

d As an extraordinary item As an extraordinary item

[greg2015]

From the AICPA website:

Accounting and auditing pronouncements are eligible to be tested on the Uniform CPA Examination in the testing window beginning six months after a pronouncement's effective date, unless early application is permitted. When early application is permitted, the new pronouncement is eligible to be tested in the window beginning six months after the issuance date. In this case, both the old and new pronouncements may be tested until the old pronouncement is superseded.

Changes in the federal taxation area, the Internal Revenue Code and federal taxation regulations may be included in the testing window beginning six months after the change's effective date or enactment date, whichever is later.

For all other subjects covered in the Regulation (REG) and Business Environment and Concepts (BEC) sections, materials eligible to be tested include federal laws in the window beginning six months after their effective date, and uniform acts in the window beginning one year after their adoption by a simple majority of the jurisdictions.

https://www.aicpa.org/BecomeACPA/CPAExam/ExaminationContent/NewPronouncementPolicy/Pages/new_pronouncemen

ts.aspx

The new guidance on extraordinary items (ASU 2015-01) was issued on January 9, 2015 and allows for early adoption. Therefore, it may be tested in the window that begins six months after the issuance date. The window beginning six months after the effective date will be the window starting October 1, 2015. But, both the old and new pronouncement may be tested. I would assume that in this case, since the new guidance eliminates the concept of extraordinary items from GAAP entirely, that any questions on extraordinary items would pertain to the old guidance, so the answer to the question above would remain unchanged. Once the new guidance is fully effective, I think this will mean that the concept of extraordinary items may no longer be subject to testing (unless it's a “trick” question).

AUD: 99
FAR: 95
BEC: 89
REG: 87

AICPA Ethics: 91

Licensed Illinois CPA

[sandy]

Thank you. I am writing the exam in Oct.

[Author]

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