Question

Manning Company has the following items: write-down of inventories, $360,000; loss on disposal of Sports Division, $555,000; and loss due to strike, $339,000. Ignoring income taxes, what total amount should Manning Company report as extraordinary losses?

A) $ -0-.
B) $699,000.
C) $894,000.
D) $555,000.

Answer 1

Only the loss on disposal of the Sports Division might qualify as an extraordinary loss, if it is considered unusual in nature and infrequent in occurrence for Manning Company. Thus, assuming it qualifies, Manning Company should report $555,000 as extraordinary losses.

Step-by-step explanation:

Manning Company must evaluate each item (the write-down of inventories, the loss on disposal of sports division, and the loss due to strike) to determine if they are considered extraordinary losses according to accounting standards. Extraordinary items are both unusual in nature and infrequent in occurrence. The write-down of inventories is generally not considered extraordinary as inventory valuation changes can occur regularly in the course of business. The loss due to a strike is also not typically treated as extraordinary since labor disputes can be a part of normal business risks. The loss on disposal of a division, such as the Sports Division, might be considered extraordinary if the disposal is infrequent and unusual for the Manning Company. Assuming that the disposal meets these criteria, only the loss on disposal would be reported as an extraordinary loss.

Therefore, if the loss on disposal of the Sports Division qualifies as extraordinary, then Manning Company should report that amount as an extraordinary loss. The answer would be (D) $555,000.