How should a company report discontinued operations according to GAAP?

• A. In the balance sheet as a separate line item
• B. As part of accumulated other comprehensive income
• C. In the income statement separately from continuing operations
• D. Within the notes of the financial statements

Answer: (C)

Discontinued operations are reported in the income statement separately from continuing operations in accordance with GAAP. This presentation is essential because it helps users of the financial statements understand the financial impact of operations that the company has ceased, which may not be indicative of its ongoing financial performance. By isolating discontinued operations, stakeholders can better evaluate the company’s current profitability and operational effectiveness without the noise created by the results of segments that are no longer part of the business.

This reporting allows investors and analysts to focus on continuing operations to make more informed decisions regarding the company's future profitability and strategy. The separate line item for discontinued operations typically includes both the gain or loss from the operations that are discontinued as well as any related adjustments, which provides clearer insight into the effects of such decisions on the company's overall financial health.