First Bank Recognized an Extraordinary Loss from the Settlement of a Lawsuit

question 31

Essay

First Bank recognized an extraordinary loss from the settlement of a lawsuit with Fifth Street Bank that it had impeded on a processing patent.The extraordinary loss was in the amount of $3,250,000 and First Bank Corporation has an effective tax rate of 35%.First Bank paid the settlement immediately and recognized the tax benefit as a receivable to offset the current period's taxes.
Instructions:
a.Prepare the extraordinary item portion of First Bank Corporation's financial statement.
b.Using the analytical framework discussed in the text and reprinted below show the effect of following event on First Bank Corporation's financial statements.
Analytical Framework:

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Definitions:

Opportunity Cost

The expenditure experienced from not picking the immediate runner-up selection during a choice process.

Economies of Scale

The cost advantage achieved when production becomes efficient, leading to a decrease in the per-unit cost as the volume of production increases.

Autarky

A situation where a country or economy operates in total self-sufficiency, without engaging in international trade.

Production Possibilities

The different quantities of various goods and services that an economy can produce with given resources and technology.