Topics: Income from continuing operations * Income from continuing operations includes the revenues, expenses, gains and losses that will probably continue in future periods. * In general, gains and losses result from changes in equity that do not result directly from operations but nonetheless are related to those activities. * INCOME TAX EXPENSE is shows as a separate expense in the income statement. * TAXABLE INCOME comprises revenues, expenses, gains, and losses as measured according to the regulations of the appropriate taxing authority. * While the actual measurement of income tax expense can be complex, at this point we can consider income tax expense to be a simple percentage of income before taxes. * A distinction often is made between operating and nonoperating income. * OPERATING INCOME includes revenues and expenses directly related to the primary revenue-generating activities of the company. * NOPERATING INCOME relates to peripheral or incidental activities of the company. (like selling investments and interest expense in nonoperating income) Earnings quality * The presentation of the components of net income and the related supplemental disclosures provide clues to the user of the statement in an assessment of earnings quality. * Earnings quality is used as a framework for more in-depth discussions of operating and nonoperating income. * The term EARNINGS QUALITY refers to the ability of reported earnings (income) to predict a company’s future earnings. * To enhance predicted value, analysts try to separate a company’s transitory earnings effects from its permanent earnings. Transitory earnings effects result from transactions or events that are not likely to occur again in the foreseeable future or that are likely to have a different impact on earnings in the