Khalil_Nancy_writingassignment - To: Yun Cheng, Chief...

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To: Yun Cheng, Chief Financial Officer of Carter Hawley Hale Stores From: Nancy Khalil, Controller of Carter Hawley Hale Stores Subject: Recommendation for proper reporting of earth quake damage Date: September 21, 2011 Our company experienced a considerably large amount of monetary damage to the San Francisco Bay Area because of the earthquake that occurred on October 17, 1989. The amount of damages and losses we incurred during this event was massive compared to the previous earthquakes that California has experienced. This earthquake was reported to be the largest earthquake to strike the San Francisco Bay Area since the earthquake of 1906 that caused severe damages to San Francisco. The 15 second earthquake was of 7.1 magnitude, based on the Richter scale. As a result, twelve of the twenty stores ceased operation for varying periods of time. The total uncovered cost of the damage was $27.5 million ($16.5 million after tax benefits). We reported an after-tax loss of $9.47 million before accessing the earthquake loss for the fiscal year of August, 1990. I would like to discuss the different methods to report the earthquake loss and explain which reporting method, in my opinion, would be the best method to use and why. On the Income Statement, losses that are direct results from Earthquakes of large scale can be reported in one of two ways, as an extraordinary item, or as part of continuing operations but as a separate element of the income statement. Extraordinary items, as per the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 225-20-45-2 , are material events and transactions that are both unusual in nature and infrequent. It must be an event or transaction that meets both criteria’s; First, the event must be unusual in nature; which denotes a high degree of abnormality and is evidently unrelated to the normal activities of a company. Next, the event must not be reasonably expected to occur again in the foreseeable future, these
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This note was uploaded on 10/25/2011 for the course ACG 3341 taught by Professor Jomosankara during the Spring '09 term at FAU.

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Khalil_Nancy_writingassignment - To: Yun Cheng, Chief...

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