Tai Corp discontinued their tea division in 2020. The division made an operational loss of $2...

Tai Corp discontinued their tea division in 2020. The division made an operational loss of $2 million in 2020, and their assets were sold at a net loss of $1 million. The firm incurred a $500,000 cost on severance pay and retraining their employees for different functions. Tai Corp included the $500,000 cost on their 2020 income statement as part of their operational expenses. Are they acting in accordance of US GAAP? Why or why not?

Expert Solution

No they are not following us gaap

Severance costs are non operations expenses

Non-operating expenses are unusual charges that don’t appear on the income statement because they are bundled in other line items. Without careful footnotes research, investors would never know that these non-recurring expenses distort GAAP numbers by lowering operating earnings. Examples of hidden non-operating expenses include: restructuring or severance costs, litigation costs and certain pension costs/income. Another hidden non-operating item is asset write-downs to which we dedicate a separate report.

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ekkarill92 answered 2 years ago

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