Question 21Q - Intermediate Accounting (Kieso)

Question

Cooper Investments reported an unusual gain from the sale of certain assets in its 2017 income statement. How does intra period tax allocation affect the reporting of this unusual gain?

Step-by-Step Solution

Answer

Any unusual gain does not affect the reporting of usual gain.

Meaning of Unusual gain

Unusual gains refer to the infrequent items that are separately reported to ensure the transparency of financial reporting. It is also measured in terms of profit other than core operation.

Explanation for affecting the intra period tax allocation

The FASB prohibited the net of tax treatment for unusual items so that users can differentiate between items that are infrequent or unusual. Net of tax treatment is for prior period adjustments and discontinued operations. So intra period tax allocation does not affect the reporting of an unusual gain.