3-2 Unusual/Infrequent Items

Question 1

What does the quality of earnings impact?

Answer 1

The ability of financial statement users to predict future earnings

Question 2

Permanent Accounts

Answer 2

Will likely continue in the future

Question 3

Transitory Accounts

Answer 3

Will likely not continue into the future

Question 4

Unusual

Answer 4

The underlying event or transaction should posses a high degree of abnormality and be a type of clearly unrelated to, or only incidentally related to, the ordinary and typical activities of the entity, taking into account the environment in which the entity operates

Question 5

Why did the FASB eliminate using the word “extraordinary” to report infrequent and unusual items?

Answer 5

To reduce complexity in standards

Question 6

What is the process for reporting infrequent/unusual items?

Answer 6

Reported as a separate component of income from continuing operations

Question 7

What is important to consider when determining whether an item is unusual?

Answer 7

Environment (geographical location, industry, etc.)

Question 8

What are examples of unusual/infrequent items?

Answer 8

Casualty loss such as property damage from natural disasters
Impairment of assets that might occur
Sale of the only investment held in a company’s history
Restructuring charges due to a company downsize

Question 9

Restructuring

Answer 9

A program that is planned and controlled by management, and materially changes either the scope of a business undertaken by an entity, or the manner in which that business is conducted

Question 10

When are liabilities for restructuring or exit costs and the associated expense recorded?

Answer 10

In the period that the restructuring even occurs (not when a plan is in place)