Chapter 5, Problem 5C

Nonrecurring Items

Lynn Company sells a component of its business in the middle of the year. On the date of sale, the net proceeds received were less than the aggregate book value of the component’s net assets. The component was operating at a loss from the beginning of the year.

In addition, Lynn had one of its manufacturing plants destroyed by an earthquake during the year. Earthquakes are not uncommon in Lynn’s operating environment.

Required:

1. 1. Explain how Lynn should report discontinued operations of a component of its business on its income statement for this year. Do not discuss earnings per share requirements.
2. 2. Explain how Lynn should report the loss from the earthquake on its income statement for this year. Do not discuss earnings per share requirements.