(L.O. 4) A material loss should be presented separately as a component of income from continuing operations when it is:

a. unusual in nature and infrequent in occurrence.

b. unusual in nature but not infrequent in occurrence.

c. an extraordinary loss.

d. a cumulative effect of a change in accounting principle.

Approach and Explanation: Visualize an income statement and mentally identify the section that reports income from continuing operations. Read one answer at a time and determine if it correctly describes how the statement in the question stem can be completed. A material loss that is (1) unusual in nature and (2) infrequent in occurrence should be reported as an extraordinary item. A loss that meets one of the criteria for being classified as extraordinary, but not both, should be separately disclosed as a component of income from continuing operations. An extraordinary item is to be reported after (and not part of) income from continuing operations. A cumulative effect of a change in accounting principle does not affect the income statement. (Solution = b.)