Final answer:
GAAP requires that the net gain or loss from a pension plan settlement or curtailment be included in the income statement. This reflects the financial impact of such events on the company's profitability in the period they occur.
Step-by-step explanation:
Under current GAAP (Generally Accepted Accounting Principles), the net gain or loss from a settlement or curtailment should be recognized in the income statement. This is because such gains or losses are considered part of the company's operating results for the period in which the settlement or curtailment occurs. A settlement refers to the action where the obligations of a pension plan are resolved by paying the beneficiaries, whereas a curtailment is an event that significantly reduces the expected years of future service of current employees or eliminates for a significant number of employees the accrual of defined benefits for some or all of their future services.
When a pension plan is settled or curtailed, it can lead to gains or losses that must be reflected in the financial performance of the company during that period. Hence, these gains or losses are included in the income statement and not in the statement of retained earnings, balance sheet, or statement of cash flows. This treatment ensures that investors and stakeholders have a clear picture of the impact of such events on the company's profitability.