CA4-6 ETHICS (Classification of Income Statement Items) As audit partner for Grupo and Rijo, you are in charge of reviewing the classification of unusual items that have occurred during the current year. The following material items have come to your attention.

4. A retail outlet changed its computation for bad debt expense from 1% to of 1% of sales because of changes in its customer clientele.

5. A mining concern sells a foreign subsidiary engaged in uranium mining, although it (the seller) continues to engage in uranium mining in other countries.

6. A steel company changes from the average-cost method to the FIFO method for inventory costing purposes.

7. A construction company, at great expense, prepared a major proposal for a government loan. The loan is not approved.

8. A water pump manufacturer has had large losses resulting from a strike by its employees early in the year.

Instructions

From the foregoing information, indicate in what section of the income statement or retained earnings statement these items should be classified. Provide a brief rationale for your position.