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MARCH 8, 2015

After reading through the concerns you have regarding certain events and how to account for
them in the upcoming income statement, we have some suggestions. It is apparent that you have
an extraordinary loss, a discontinued gain, and two non-operating losses. Included in this memo
is how to account for those items on your income statement and the related disclosures.

Your first event is the 3 month labor strike. According to FASB ASC 225-20-45-4 the effects of a
strike shall not be recognized as an extraordinary item. Therefore, the $1,200,000 loss from the
strike will be listed as a non-operating item in the continuing operations section on the income
statement. Rather than include this item with the other non-operating items, the loss from the
strike will be written on its own line. In regards to disclosing, strikes are considered general
knowledge and therefore disclosure is not required. We, however, may encourage a small
disclosure since the amount of the loss is material.

The second event is similar to the first. The wild fires in the Colorado location are unusual but
not infrequent, so we would classify this as a non-operating loss. Once again there will be a
separate line under non-operating items within the continuing operations section that accounts
for an $800,000 loss from the wild fires. On its own line you can write loss from wild fire
followed by the $800,000 so you will not need to disclose any information in the notes.

The third event is defined as an extraordinary item. The flood in Missouri is unusual, meaning it
has nothing to do with your operations, and is infrequent since the last one was in the 1800s and
you did not see it happening in the forseeable future. On the income statement you start with
gross profit, then operating income from continuing operations before discontinued operations,
then your discontinued items net of tax, then you will list out your extraordinary items net of tax.
You will show a loss of $600,000 from the flood in the extraordinary items section. This will
require a separate disclosure note. You will have to disclose why there is a loss and how much
the loss is for. You can simply label this disclosure as Extraordinary Item.

The final event is the sale of 3 of your operating segments. This is classified as a discontinued
item because you can separate the cash flows directly from that segment and clean cut them out
of your corporation. You will recognize this as a gain since the price they sold for was
$2,000,000 above your book value, or what you paid for it. This gain will be listed under
discontinued operations after income from continuing operations before extraordinary item. On
the face of the financial statement you will list the gain from discontinued operations net of taxes
and then disclose it in the notes. The disclosure note should provide additional details about the
discontinued component, including the identity of the component, the major classes of assets and
liabilities of the component, the reason for the discontinuance, and the expected manner of
Hopefully our insights and suggestions can help you build your income statement in appliance
with GAAP. Please feel free to contact us with any questions.
Lauren Gonner
Brooke Dittmer