After the closure of the Jimmy Jean Division of Jim’s Jeans, the Granny Glam Division was so upset that they decided to go on strike. As a result, Jim’s Jeans suffered a loss of $20,000. Where was this noted on the Income Statement?
Explanation
Answer - E - The loss that resulted from the strike would be a separate line item, in the main portion of the income statement. It would not qualify as an extraordinary item.
Key Takeaway: Extraordinary items are events that are unusual in nature and infrequent in occurrence. If an item is unique and significant but it does not meet the criteria for being both “unusual and infrequent,” the item must remain in the main section of the income statement. It can, however, be shown as a separate line item. For example, a strike in a labor force, while unique and significant, is not unusual and infrequent in the business world.
