Classification as an unusual item on the income statement would be appropriate for everything listed except a substantial writedown of obsolete inventories. Writedowns of inventories fall under regular business operations and adjustments, whereas the other events mentioned are infrequent and disrupt normal operations.
The student asked which of the following would not be appropriately classified as an unusual item on the income statement: 1) loss from a strike, 2) gain from condemnation settlement, 3) gain or loss on disposal of a component of the business, 4) substantial writedown of obsolete inventories. The answer is option 4) substantial writedown of obsolete inventories. This is because a writedown of inventories is typically accounted for as a part of the cost of goods sold and is a regular part of business operations involving inventory that has been produced but not yet sold, while the other items are indeed unusual or infrequent.
Unusual items are considered to be significant economic events that are infrequent in nature and arise from transactions that are outside the normal activities of the business. Losses from strikes, gains from condemnation settlements, and gains or losses from disposals of components of a business are examples of events that could significantly disrupt normal operations and are sufficiently infrequent or unusual to be listed separately in the income statement.
By contrast, the writedown of obsolete inventories is more routine, reflecting the regular reassessment of the value of the inventory goods that have been produced but not sold, to prevent overstatement on the financial statements. Inventory is considered a small category, but essential in reflecting goods waiting to be sold to consumers, and its valuation can rise or decline depending on the state of the business.