Question:
Carter Hawley Hale Stores (CHHS), Inc., was one of the largest department store retailers in the United
States.
At the end of fiscal 1989, the company operated 113 stores in the Sunbelt regions of the country. The
company’s divisions included The Broadway, with 43 stores in Southern California and 11 stores in the
southwest, and Emporium, with 22 stores in the greater San Francisco Bay Area.
On October 17, 1989, a 7.1 Richter scale earthquake caused significant amounts of monetary damage to
the San Francisco Bay Area. This was the largest earthquake to hit the Bay Area since the quake of 1906
destroyed much of San Francisco. California is lined with many active earthquake faults. Hundreds of
small earthquakes occur each year throughout the state.
The Emporium division of CHHS suffered extensive damage as a result of the October 17 earthquake.
Twelve of the twenty-two stores were closed for varying periods of time, with the Oakland store hardest
hit. In total, uninsured damage was $27.5 million ($16.5 million after tax benefits).
For the fiscal year ending August 4, 1990, CHHS reported an after-tax loss of $9.47 million before
considering the earthquake loss. Total revenues for the year were $2.857 billion.
Required:
Assume that you are the CHHS controller. The chief financial officer of CHHS has asked you to prepare a
short report (1–2 pages) in memo form giving your recommendation as to the proper reporting of the
earthquake damage costs in the income statement for the year ending August 4, 1990. Explain why your
recommendation is appropriate.
Be sure to include in your report any references to authoritative pronouncements that support your
recommendation.
Answer:
Content (70%)
, _________ 10 Is the loss material?
_________ 25 Lists the alternative treatments.
________ Present before-tax amount as a separate line item.
________ Present the after-tax amount as an extraordinary item.
________ In either case, disclosure is required.
_________ 25 Cites the appropriate authoritative pronouncement,
FASB ASC 225–20–45 (previously APBO No. 30), and
discuss the concepts of unusual and infrequent in
the context of the company’s environment.
_________ 10 A clear, well-supported recommendation is made.
_______
_________ 70 points
Writing (30%)
_________ 6 Terminology and tone appropriate to the audience of a chief
financial officer.
_________ 12 Organization permits ease of understanding.
_______ Introduction that states purpose.
_______ Paragraphs that separate main points.
_________ 12 English
Carter Hawley Hale Stores (CHHS), Inc., was one of the largest department store retailers in the United
States.
At the end of fiscal 1989, the company operated 113 stores in the Sunbelt regions of the country. The
company’s divisions included The Broadway, with 43 stores in Southern California and 11 stores in the
southwest, and Emporium, with 22 stores in the greater San Francisco Bay Area.
On October 17, 1989, a 7.1 Richter scale earthquake caused significant amounts of monetary damage to
the San Francisco Bay Area. This was the largest earthquake to hit the Bay Area since the quake of 1906
destroyed much of San Francisco. California is lined with many active earthquake faults. Hundreds of
small earthquakes occur each year throughout the state.
The Emporium division of CHHS suffered extensive damage as a result of the October 17 earthquake.
Twelve of the twenty-two stores were closed for varying periods of time, with the Oakland store hardest
hit. In total, uninsured damage was $27.5 million ($16.5 million after tax benefits).
For the fiscal year ending August 4, 1990, CHHS reported an after-tax loss of $9.47 million before
considering the earthquake loss. Total revenues for the year were $2.857 billion.
Required:
Assume that you are the CHHS controller. The chief financial officer of CHHS has asked you to prepare a
short report (1–2 pages) in memo form giving your recommendation as to the proper reporting of the
earthquake damage costs in the income statement for the year ending August 4, 1990. Explain why your
recommendation is appropriate.
Be sure to include in your report any references to authoritative pronouncements that support your
recommendation.
Answer:
Content (70%)
, _________ 10 Is the loss material?
_________ 25 Lists the alternative treatments.
________ Present before-tax amount as a separate line item.
________ Present the after-tax amount as an extraordinary item.
________ In either case, disclosure is required.
_________ 25 Cites the appropriate authoritative pronouncement,
FASB ASC 225–20–45 (previously APBO No. 30), and
discuss the concepts of unusual and infrequent in
the context of the company’s environment.
_________ 10 A clear, well-supported recommendation is made.
_______
_________ 70 points
Writing (30%)
_________ 6 Terminology and tone appropriate to the audience of a chief
financial officer.
_________ 12 Organization permits ease of understanding.
_______ Introduction that states purpose.
_______ Paragraphs that separate main points.
_________ 12 English
