Quiz 12: Income and Changes in Retained Earnings



(a) Since Atlantic Richfield Company (ARCO) sold its entire non-coal minerals segment, both operating loss and loss on disposal of its non-coal mineral segment will appear as a loss from discontinued operations in the books of BP America. (b) It will be included among the revenue and expenses of normal and recurring business operations for the current and future year. (c) Explosion of chemical plant will be shown under extra ordinary item. (d) Gain from forced sale as a result of condemnation proceedings will be shown as income from discontinued operations as it is no longer with G-Pacific Corporation.

The subtotal income from continuing operations measures the profitability of the ongoing operations. This subtotal should be helpful in making predictions of the company's future earnings. The subtotal income before extraordinary item is necessary to show investors what the net income would have been if the extraordinary gain or loss had not occurred. Extraordinary items are shown net of any related income tax effects.