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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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What items are included in a company’s income from continuing operations? How are these categorized if the company uses (a) a single-step format or (b) a multiple-step format?

To determine

Explain the items that are included in the company’s income from continuing operations and the manner in which they are categorized under (a) a single-step format or (b) a multi-step format.

Explanation

Items that are included in the company’s income from continuing operations are as follows:

  • Operating income
  • Interest expense
  • Interest and dividend income
  • Unusual and nonrecurring gains and losses
  • Income taxes associated with the continuing operations

(a) Single-step format:

This format displays the total revenues as one line item from which the total expenses including cost of goods sold is subtracted to arrive at the net profit /net loss for the period.

If the company is using the single-step format, then the items would be classified into two categories:

  • Revenues include all the operating revenues and other revenues are listed and then summed to calculate the total revenues.
  • Expenses include the cost of goods sold, operating expenses, other expenses and income taxes expenses are listed and then summed to calculate the total expenses.

(b) Multi-step format:

A multiple step income statement refers to the income statement that shows the operating and non-operating activities of the business under separate head. In different steps of the multi-step income statement, principal operating activities are reported that starts from the record of sales revenue with all contra sales revenue account like sales returns, allowances and sales discounts...

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