Chapter 5, Problem 21EP

In the current year, the building occupied by Sunshine City’s Culture and Recreation Department suffered severe structural damage as a result of a hurricane. It had been 48 years since a hurricane had hit the Sunshine City area, although hurricanes in Sunshine City’s geographic area are not uncommon. The building had been purchased 10 years earlier at a cost of $2,000,000 and had accumulated depreciation of $500,000 as of the date of the hurricane. Based on a restoration cost analysis, city engineers estimate the impairment loss at $230,000; however, the city expects during the next fiscal year to receive insurance recoveries of $120,000 for the damage.

Required

1. a.      Should the estimated impairment loss be reported as an extraordinary item? As a special item? Explain.
2. b.      Record the estimated impairment loss in the journal for governmental activities at the government-wide level.
3. c.       How should the insurance recovery be reported in the following fiscal year? (You need not provide the journal entry or entries here.)