Question

In a multi-step Income Statement:
A. Total expenses are subtracted from total revenues.
B. Gross profit (margin) is shown as a separate item.
C. Cost of sales and operating expense are subtracted from total revenues.
D. Other income is added to revenue from sales.

Answer 1

Answer: B.

Explanation: The multi-step income statement is ultimately used in determining Net Income which is calculated by separately determining :

1. Gross profit( Net sales - cost of goods sold)

2. Operating income( Operating expenses - Gross profit)

3. Operating income combined with non - operating revenue, losses, profit and expenses to obtain the net income or loss.

Conclusively, Gross profit(margin) will be calculated separately, which then be used to obtain the operating income.