A review of the December 31, 2007, financial statements of Baden Corporation revealed that under the caption "extraordinary losses," Baden reported a total of $515,000.Further analysis revealed that the $515,000 in losses was comprised of the following items:

(1) Baden recorded a loss of $150,000 incurred in the abandonment of equipment formerly used in the business.
(2) In an unusual and infrequent occurrence, a loss of $250,000 was sustained as a result of hurricane damage to a warehouse.
(3) During 2007, several factories were shut down during a major strike by employees, resulting in a loss of $85,000.
(4) Uncollectible accounts receivable of $30,000 were written off as uncollectible.

Ignoring income taxes, what amount of loss should Baden report as extraordinary on its 2007 income statement?
A)$150,000.
B)$250,000.
C)$400,000.
D)$515,000.

Question

A review of the December 31, 2007, financial statements of Baden Corporation revealed that under the caption "extraordinary losses," Baden reported a total of $515,000.Further analysis revealed that the $515,000 in losses was comprised of the following items:

(1) Baden recorded a loss of $150,000 incurred in the abandonment of equipment formerly used in the business.
(2) In an unusual and infrequent occurrence, a loss of $250,000 was sustained as a result of hurricane damage to a warehouse.
(3) During 2007, several factories were shut down during a major strike by employees, resulting in a loss of $85,000.
(4) Uncollectible accounts receivable of $30,000 were written off as uncollectible.

Ignoring income taxes, what amount of loss should Baden report as extraordinary on its 2007 income statement?
A)$150,000.
B)$250,000.
C)$400,000.
D)$515,000.

Quizplus · Accepted Answer

Only the loss of $250,000 due to hurricane damage to a warehouse meets the criteria of being both unusual and infrequent, and can be classified as an extraordinary item. The other losses incurred by Baden, such as the abandonment of equipment and the strike-related losses, are not considered extraordinary as they are within the normal course of business operations. The uncollectible accounts receivable is also not considered extraordinary, as it is a common occurrence in many businesses. Therefore, the amount of loss that should be reported as extraordinary on Baden's 2007 income statement is $250,000.

A Review of the December 31, 2007, Financial Statements of Baden