Paper Due

Three companies (11%) reported extraordinary gains or losses from first-time consolidation of variable-interest entities. When consolidating a variable-interest entity for the first time, under FASB Interpretation no. 46R, one must record an extraordinary loss, in lieu of goodwill, if the entity is not defined as a business. As with typical consolidations under Statement no. 141, companies incurring negative goodwill on a first-time consolidation of a variable-interest entity will record an extraordinary gain.

One company reported an extraordinary gain on involuntary conversion of assets due to a fire (see Exhibit 2). Two more companies had reported extraordinary items for involuntary conversion of assets due to hurricanes but subsequently amended their income statements to account for this event as an unusual, but not extraordinary, item. Because hurricane losses do not generally meet the criteria of unusual and infrequent, companies have not reported these losses as extraordinary. Six hurricanes, not classified as extraordinary in 2004, would indicate that hurricane losses do not meet the criteria as unusual or infrequent. (See AICPA Technical Practice Aid 5400.05.)

Disclosure Example

Extraordinary Item: Fire

On March 28, 2003, the Company had an accidental fire at the Junction, Texas, plant. The Company was given permission to begin demolition and the rebuilding of a portion of the production facility in April 2003. The initial restoration project, completed in May 2003, included the rebuild of one extrusion line that had been partially damaged, electrical system replacement and roof replacement. The rebuild of the second extrusion line was completed in April 2004. The Junction plant is fully insured for fire damage and business interruption. Through December 31, 2004 and 2003, the Company had received $6.0 million and $5.4 million, respectively, in insurance proceeds related to this incident.

Due to the Junction facility fire, gross assets were...