3 million euros earnings will not recur for group

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Unformatted text preview: ottom­line profitability, after taxes, of all the operations of the company that will recur in the following fiscal period (2008, in this case). Net income from discontinued operations is the profitability from companies owned during 2007 but sold or closed by the end of the year; in other words, the discontinued operations will not recur in 2008 for Group Danone. b. During 2007 Group Danone sold or closed operations that generated 3.3 million euros in profitability; this level of earnings represented 76% of Danone’s total profits for 2007, as the company’s continuing operations (those that will occur again in 2008) earned only 1.0 million euros. An analyst interested in evaluating the future performance of Group Danone would look to the continuing operations as the guide for future results, not the total operations; the 3.3 million euros earnings will not recur for Group Danone in 2008 and beyond. E13–10 a. Loss on Destruction of Inventory (Lo, –SE) 2,325,000 Inventory (–A) 2,325,000 Recognized inventory loss from earthquake. b. Extraordinary Loss on Destruction of Inventory (Lo, –SE) 2,325,000 Inventory (–A) 2,325,000 Recognized inventory loss from earthquake. Income Tax Liability (–L) Extraordinary Loss on Destruction of Inventory (–Lo, +SE) 813,750 Recognized income tax benefit on inventory loss from earthquake. 813,750* * $813,750 = Loss of $2,325,000 Tax rate of 35% c. If the earthquake is considered both an unusual and infrequent event, then the loss should be classified as an extraordinary loss. However, if the loss is considered unusual or infrequent, but not both, then it should be classified as other revenues and expenses. If the loss is considered both usual and frequent, then it should be disclosed as part of operations. Since Paxson Corporation's plant is located in San Francisco, then the magnitude of the earthquake would have to be considered. To be considered an extraordinary loss, the events that gave rise to the loss must be both unusual in nature and occur infrequently. In San Francisco, minor earthquakes are not infrequent; they are expected to occur occasionally. Consequently, if this loss was due to a minor earthquake, it would not be considered extraordinary. Since earthquakes are not usual (i.e., part of the company's normal operations), the loss should not be considered as part of operations. Instead, the loss should be classified as an other expense. Alternatively, if the damage was due to a major earthquake, it might qualify as an extraordinary loss. Major earthquakes, such as the 1906 and 1989 earthquakes that devastated the Bay area, are both unusual and infrequent. d. If Paxson’s plant was located in Miami, Florida, then any earthquake is considered both unusual and infrequent and would qualify as an extraordinary loss. E13–11 a. If a lawsuit is considered unusual but not infrequent, then it would be classified under other expenses and losses. Consequently, the loss from the lawsuit would be used to compute net income from continuing operati...
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This homework help was uploaded on 03/03/2014 for the course ACCT 5053 taught by Professor Staff during the Fall '08 term at Oklahoma State.

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