Which of the following non-recurring items experienced by a company is most likely to be included as part of income from on the company’s income statement? A. Restructuring costs. B. Expropriation of assets. C. Gains or losses on early retirement of debt. D. Gains or losses from sale of a business segment. answer is A Restructuring costs are considered unusual or infrequent, but not both, and are included as a component of income from continuing operation. (Note: When this question last appeared on the Level I CFA Examination, gains or losses from the early retirement of debt were considered extraordinary items under SFAS 4. SFAS 4 has been rescinded and gains or losses from early retirement of debt are no longer considered extraordinary.) --------------------------------------------------------------- A is absolutely right. my problem is with C. according to above explanation, Gains or losses on early retirement of debt is part of continuing operations income . I searched some annual report from SEC; they’re doing same. I am not good at accounting, anyone can look at this?
Why is D wrong?
D is wrong - because it is not continuing operations. Once they sold the business segment…
annexguy, Gains or losses on early retirement of debt would also be correct, so this particular question will no longer be asked as such. It makes sense, since Gains or losses on early retirement of debt is rather usual, albeit infrequent.
CFAI Book, P:169: Items that do not meet the definition of extraordinary are shown as part of a company’s continuing operations. Items that are unusual or infrequent-but not both- cannot be shown as extraordinary. For example, restructuring charges, such as costs to close plants and employee termination costs, are considered part of a company’s ordinary activities. As another example, gains and losses arising when a company sells an asset or part of a business for more or less than its carrying value are also disclosed seperately on the income statement but are not considered extraordinary because sales are considered ordinary. So, I think both A and D are correct. CFAI Book, P:170 Nonoperating items are reported seperately from operating income. For example, if a nonfinancial service company invests in equity or debt securities issued by another company, any profits from sales of these securities will be shown as nonoperating income. I guess, therefore C is wrong. However, this paragraph is talking about debt issued by another company. Therefore, it is not the same thing, but I could not find any other related text in the book.