| Course | ACC-6030 Accounting Theory |
|---|---|
| Module | Module 6 |
| Paper type | Written Assignment 6: the income statement |
| Length | About 743 words, 5 pages |
| Format | APA 7 student paper |
| School | Thomas Edison State University |
| Program | M.S. in Management in Accounting |
| Updated | October 2026 |
Free sample paper for ACC 6030 Module 6
Which Earnings Count? The Income Statement, Its Subtotals and the Pull of Adjusted Earnings
Student Name
M.S. in Management in Accounting, Thomas Edison State University
ACC-6030: Accounting Theory
Mentor Name
Month Day, Year
Which Earnings Count? The Income Statement, Its Subtotals and the Pull of Adjusted Earnings
Introduction
The income statement is the most studied financial statement, and its arrangement reflects a theory of what users need: a measure of performance that helps predict future earnings. Items are grouped so that users can separate results that will recur from those that will not (Schroeder et al., 2011). The difficulty is that management decides much of the grouping, and its incentives may not match users' needs.
Why the Statement Separates Items
If earnings are used to forecast future earnings, items that will not recur should be distinguishable. The multiple-step format separates gross profit, operating income, other income and expense, income from continuing operations and discontinued operations. This structure reflects the all-inclusive concept, in which nearly all gains and losses pass through income, combined with disaggregation, so users can choose which parts to project.
The End of Extraordinary Items
For decades, U.S. GAAP required items that were both unusual in nature and infrequent in occurrence to be presented as extraordinary, below income from continuing operations, net of tax. In practice, few events qualified: even the losses from the September 11 attacks were not treated as extraordinary. Preparers found the judgment hard to apply and users found the category of little use. In 2015 the FASB eliminated it as part of a simplification initiative, while retaining disclosure of unusual or infrequent items within continuing operations (Financial Accounting Standards Board [FASB], 2015).
Discontinued Operations
Discontinued operations remain a separate category. Since 2014, only a disposal that changes the company's strategic direction and materially moves its operations and results qualifies, the sale of a major business line or region being the usual example. The narrower definition reduced the number of small disposals reported separately, which had made continuing operations look artificially stable.
The 2014 change narrowed the category on purpose. Previously, companies reported many small disposals as discontinued, pushing their losses below income from continuing operations; requiring a strategic shift keeps routine disposals of stores or product lines in continuing results.
Non-GAAP Earnings
Many companies now emphasize adjusted earnings in press releases, excluding items such as restructuring charges, stock-based compensation, amortization of acquired intangibles and impairments. Managers argue that these figures better reflect ongoing performance. Bradshaw and Sloan (2002) documented a growing gap between earnings reported in GAAP statements and the street earnings that analysts and managers emphasized, and found that the market increasingly responded to street earnings, raising concern that excluded items were selected to make results look better.
Regulators responded. Regulation G and related SEC rules adopted in 2003 require companies presenting non-GAAP measures to present the most directly comparable GAAP measure with equal or greater prominence and to reconcile the two. The SEC staff has since challenged measures that exclude normal, recurring cash operating expenses or that change from period to period. Internationally, IFRS 18, issued in 2024, brings management-defined performance measures into the audited notes with reconciliations, which may make such measures more disciplined.
Applying the Analysis: Hackensack Container Corp.
Hackensack Container Corp., a composite maker of corrugated packaging, reported 2026 GAAP net income of $14 million. Its press release led with adjusted earnings of $31 million, excluding $6 million of restructuring charges, $5 million of stock-based compensation, $4 million of amortization of customer lists acquired in 2023 and $2 million of losses on a lawsuit settlement. Restructuring charges have appeared in each of the last four years, which suggests they are part of normal operations rather than unusual. Stock-based compensation is a recurring cost of paying employees, and excluding it overstates profitability. Amortization of acquired intangibles is a common exclusion with some logic, since internally developed intangibles are not amortized, but the cost of acquiring them was real. Only the lawsuit loss looks plausibly nonrecurring.
An informed user might accept adjusted earnings of about $16 million, excluding the lawsuit and perhaps the amortization, far below the company's $31 million headline. Under SEC rules, the release must present the $14 million GAAP figure with equal prominence and reconcile the two; under IFRS 18, the reconciliation would also appear in audited notes.
Conclusion
The income statement's subtotals exist to help users separate recurring from nonrecurring results. Standard setters have removed categories that did not serve that purpose and tightened others. Non-GAAP measures fill a demand that GAAP subtotals do not meet, but research and Hackensack's example show that management's choice of exclusions can serve presentation more than prediction.
References
Bradshaw, M. T., & Sloan, R. G. (2002). GAAP versus the street: An empirical assessment of two alternative definitions of earnings. Journal of Accounting Research, 40(1), 41-66. https://doi.org/10.1111/1475-679X.00038
Financial Accounting Standards Board. (2015). Income statement, extraordinary and unusual items (Subtopic 225-20): Simplifying income statement presentation by eliminating the concept of extraordinary items (Accounting Standards Update No. 2015-01).
Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2011). Financial accounting theory and analysis: Text and cases (10th ed.). John Wiley & Sons.
Reading the ACC 6030 Module 6 assignment instructions
The income statement is the subject of Written Assignment 6. Prompts here commonly ask about the theory behind income statement format, the all-inclusive and current operating performance concepts, the treatment of unusual items and discontinued operations, earnings quality and non-GAAP measures, sometimes through a Schroeder case. Since the textbook's 2011 edition, extraordinary items have been eliminated, discontinued operations redefined and IFRS 18 issued, so update older material. The theory is then tried on an invented company's earnings release. Expect a question on how companies present non-GAAP measures and what the SEC requires of them, along with one on the treatment of unusual items. Questions often turn on non-GAAP measures and what the SEC requires when a company leads its release with an adjusted figure.
How this ACC 6030 Module 6 example is built
The introduction explains that the statement's structure reflects a theory of prediction. A section shows why items are separated, followed by short sections on the elimination of extraordinary items and the narrower definition of discontinued operations, each with the reason for the change. The non-GAAP section reports research on street earnings and describes SEC rules and IFRS 18's approach. The application evaluates each exclusion in an invented company's adjusted earnings and estimates a more defensible figure, and the conclusion ties the analysis back to prediction. The final part asks whether non-GAAP measures help or mislead, using the reconciliation as evidence.
Reading the ACC 6030 Module 6 grading rubric
Income statement analysis is one of the ten assignments that decide half the course grade. Mentors look for a correct account of the statement's layout and the theory behind it, current treatment of unusual items and discontinued operations, an informed discussion of non-GAAP measures supported by research and regulation, and an application that evaluates specific items. Recognizing that extraordinary items no longer exist under U.S. GAAP is a basic currency check. Papers lose points when they describe outdated rules as current or discuss non-GAAP measures without any evidence or regulatory context. Specific examples of what was reclassified, and why, support the analysis. Answers that judge whether non-GAAP measures inform or mislead, using a reconciliation as evidence, earn credit for analysis. The history of extraordinary items should be accurate and brief.
Common ACC 6030 Module 6 mistakes, and how to avoid them
Students often rely on older textbook descriptions of extraordinary items, which the FASB eliminated in 2015. Check the current rules for each category. When discussing non-GAAP earnings, evaluate specific exclusions: are they truly nonrecurring, or normal costs relabeled? Cite SEC requirements accurately: equal prominence and reconciliation. Use research to support claims about how investors respond. Reconcile every non-GAAP figure to its nearest GAAP measure before discussing it. Note which adjustments recur every year despite being labeled unusual, since that pattern is the usual criticism. A free first sample of your own ACC-6030 Module 6 paper is available on request.
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ACC 6030 Module 6 questions, answered
Where can I find a free ACC 6030 Module 6 sample paper?
The income statement theory paper is printed above: why items are separated, the end of extraordinary items, discontinued operations, non-GAAP earnings and an analysis of one company's adjusted figure.
Are extraordinary items still reported under U.S. GAAP?
No. The FASB eliminated the extraordinary items classification in 2015, though unusual or infrequent items are still disclosed.
What qualifies as discontinued operations?
A sale or closure big enough to change the company's strategic direction and to move its operations and results materially.
What rules apply to non-GAAP earnings?
SEC rules require the most comparable GAAP measure with equal or greater prominence and a reconciliation between the two.
What did research find about street earnings?
Bradshaw and Sloan documented a growing gap between GAAP and street earnings and an increasing market response to street earnings.