CFA question: Could someone tell me why the right answer is---?

[bpl1000]

Which of the following statements about nonrecurring items is FALSE?

A. Cumulative effects resulting from a change in the accounting method for inventory are reported in the cost of goods sold.

B. Unusual or infrequent items are reported before taxes above net income from continuing operations.

C. A change in accounting principle is reported in the income statement net of taxes after extrodinary items and before net income.

D. Gains or losses from extraordinary items and discontinued operations are reported net of taxes at the bottom of the income statement before net income.

 

[Brains]

It's A. Because on the income a statement a change in accounting method (i.e From LIFO to FIFO is reported below the line which is independent of net income from continuing operations (i.e have tax impact). But the answer in A is saying the change in accounting principle must be added to the cost of goods sold which in this case will have an effect on the net income from operations. Just keep this in mind (Below the line items does not affect net income from operations). If you are from an accounting background this would have made since to you. But just keep this in mind that below the line items is independent of net income from continuing operations.

 

[bpl1000]

Thanks.