Income Statement Recognition During 2000, the following events occurred that affected Northeastern Fisheries, Yarmouth, Maine:

1. Products costing $300,000 were sold for $450,000 cash.

2. A building with a book value of $285,000 was destroyed by fire. Insurance proceeds were $244,000.

3. The Great Lakes Canning Division was sold for a gain of

$372,000. Great Lakes Canning provided approximately 40 percent of Northeastern’s total revenue in the prior year.

4. A change in accounting principle resulted in a $68,000 reduction of the carrying value of inventory, with a corresponding decrease in income.
5. A meteorite struck one of the fishing boats as the boat was coming back into port and caused damage of $97,000.
6. The president of Northeastern Fisheries fell while he was walking on the dock and required medical assistance of $12,000.
Income statements typically classify the effects of different types of events and transactions separately. Assume that you are acquiring information about Northeastern Fisheries because you might be interested in buying stock in the company.

a. For each of the events listed, explain how it should be reported in Northeastern’s 2000 income statement.

b. Why are the income statement effects of discontinued operations, extraordinary gains and losses, and accounting changes not included as part of operating income?

c. If the gain on the disposal of the Great Lakes Canning Division was included in operating income and not separately disclosed, how might you, as a potential investor, be misled?