University of Central Florida (UCF) ACG3173 Accounting for Decision-Makers Exam 3 Practice

The identification of an extraordinary item on the income statement is rooted in its nature of being both unusual and infrequent in occurrence. In this regard, losses resulting from natural disasters are fittingly categorized as extraordinary items because they do not arise from the regular business operations and are not expected to happen regularly. Such events can significantly impact the financial results of a company and do not reflect the ongoing financial performance of the business.

Regular operational gains, annual interest income, and depreciation expenses all represent recurring aspects of business operations and financial activities. These items do not meet the criteria for extraordinary classification, as they occur within the normal course of business activities and are expected to happen regularly. Therefore, losses stemming from natural disasters stand out as an extraordinary item on the income statement due to their unique and nonrecurring nature.