Asset impairment. On July 20, 2011, the building occupied by Sunshine City’s Parks and Recreation Department suffered severe structural damage as a result of a hurricane. It had been 48 years since a hurricane had hit the Sunshine City area, although hurricanes in Sunshine City’s geographic area are not uncommon. The building had been purchased in 2001 at a cost of $2,000,000 and had accumulated depreciation of $500,000 as of July 2011. Based on a restoration cost analysis, city engineers estimate the impairment loss at $230,000: however, the city expects during the next fiscal year to receive insurance recoveries of $120,000 for the damage.
Required
a. Should the estimated impairment loss be reported as an extraordinary item? As a special item? Explain.
b. Record the estimated impairment loss in the journal for governmental activities at the government-wide level.
c. How should the insurance recovery be reported in the following fiscal year? (You need not provide the journal entry or entries here.)