Question:
McMinville Corporation manufactures paper products. In 2009, the company purchased several large
tracts of timber for $22 million with the intention of harvesting the timber rather than buying this critical
raw material from outside suppliers. However, in 2013, McMinville abandoned the idea and all of the
timber tracts were sold for $31 million. Net income for 2013, before considering this event, is $17.5
million and the company’s effective tax rate is 30%.
The focus of this case is the income statement presentation of the gain on the sale of the timber tracts.
Your instructor will divide the class into two to six groups depending on the size of the class. The mission
of your group is to reach consensus on the appropriate income statement presentation of the gain.
Required:
Each group member should deliberate the situation independently and draft a tentative argument prior to
the class session for which the case is assigned.
In class, each group will meet for 10 to 15 minutes in different areas of the classroom. During that
meeting, group members will take turns sharing their suggestions for the purpose of arriving at a single
group treatment.
After the allotted time, a spokesperson for each group (selected during the group meetings) will share the
group’s solution with the class. The goal of the class is to incorporate the views of each group into a
consensus approach to the situation.
Answer:
The critical question that student groups should address is whether or not the gain on the sale of the
timber tracts should be reported as an extraordinary item on the 2013 income statement. There is no right
or wrong answer. The process of developing the proposed solutions will likely be more beneficial than
the solutions themselves. Students should benefit from participating in the process, interacting first with
other group members, then with the class as a whole.
McMinville Corporation manufactures paper products. In 2009, the company purchased several large
tracts of timber for $22 million with the intention of harvesting the timber rather than buying this critical
raw material from outside suppliers. However, in 2013, McMinville abandoned the idea and all of the
timber tracts were sold for $31 million. Net income for 2013, before considering this event, is $17.5
million and the company’s effective tax rate is 30%.
The focus of this case is the income statement presentation of the gain on the sale of the timber tracts.
Your instructor will divide the class into two to six groups depending on the size of the class. The mission
of your group is to reach consensus on the appropriate income statement presentation of the gain.
Required:
Each group member should deliberate the situation independently and draft a tentative argument prior to
the class session for which the case is assigned.
In class, each group will meet for 10 to 15 minutes in different areas of the classroom. During that
meeting, group members will take turns sharing their suggestions for the purpose of arriving at a single
group treatment.
After the allotted time, a spokesperson for each group (selected during the group meetings) will share the
group’s solution with the class. The goal of the class is to incorporate the views of each group into a
consensus approach to the situation.
Answer:
The critical question that student groups should address is whether or not the gain on the sale of the
timber tracts should be reported as an extraordinary item on the 2013 income statement. There is no right
or wrong answer. The process of developing the proposed solutions will likely be more beneficial than
the solutions themselves. Students should benefit from participating in the process, interacting first with
other group members, then with the class as a whole.
