Explain the presentation of a multiple-step income statement. BE5.9 (LO.5), C Writing Explain where each of the following items would appear on a multiple-step income statement: gain on disposal of plant assets, cost of goods sold, depreciation expens sales returns and allowances. Compute net sales, gross profit, income from operations, and gross profit rate.

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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**Presentation of a Multiple-Step Income Statement**

*Objective:* Explain where each of the following items would appear on a multiple-step income statement: gain on disposal of plant assets, cost of goods sold, depreciation expense, and sales returns and allowances.

**Key Items:**

1. **Gain on Disposal of Plant Assets:** This item is typically recorded under the section for "Other Revenues and Gains," which comes after operating income.

2. **Cost of Goods Sold:** This appears directly after the "Sales Revenue" section to calculate the "Gross Profit."

3. **Depreciation Expense:** It is found under "Operating Expenses," specifically within selling or administrative expenses.

4. **Sales Returns and Allowances:** This item is deducted from "Sales Revenue" to arrive at "Net Sales."

**Calculations:**

- **Net Sales**: Calculate by subtracting sales returns, allowances, and discounts from total sales revenue.
  
- **Gross Profit**: Determined by subtracting cost of goods sold from net sales.

- **Income from Operations**: Calculate by deducting total operating expenses from gross profit.

- **Gross Profit Rate**: Computed as gross profit divided by net sales, expressed as a percentage.

This structured layout helps in analyzing a company's financial performance comprehensively by separating core business activities from other activities and expenses.
Transcribed Image Text:**Presentation of a Multiple-Step Income Statement** *Objective:* Explain where each of the following items would appear on a multiple-step income statement: gain on disposal of plant assets, cost of goods sold, depreciation expense, and sales returns and allowances. **Key Items:** 1. **Gain on Disposal of Plant Assets:** This item is typically recorded under the section for "Other Revenues and Gains," which comes after operating income. 2. **Cost of Goods Sold:** This appears directly after the "Sales Revenue" section to calculate the "Gross Profit." 3. **Depreciation Expense:** It is found under "Operating Expenses," specifically within selling or administrative expenses. 4. **Sales Returns and Allowances:** This item is deducted from "Sales Revenue" to arrive at "Net Sales." **Calculations:** - **Net Sales**: Calculate by subtracting sales returns, allowances, and discounts from total sales revenue. - **Gross Profit**: Determined by subtracting cost of goods sold from net sales. - **Income from Operations**: Calculate by deducting total operating expenses from gross profit. - **Gross Profit Rate**: Computed as gross profit divided by net sales, expressed as a percentage. This structured layout helps in analyzing a company's financial performance comprehensively by separating core business activities from other activities and expenses.
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