Question

Which of the following statements about the multistep income statement is not correct?

A. Any revenues and/expenses from activities other than the company's main business are peripheral results and are included in Income from Operations.
B. The multistep income statement provides a subtotal of Income before Income Tax Expense.
C. Income before Income Tax Expense and Income from Operations are different if there are any peripheral revenues and expenses.
D. Income from Operations is the amount of revenues minus expenses from the company's main business activities.

Answer 1

The incorrect statement about the multistep income statement is A, as it inaccurately includes peripheral results in Income from Operations. These should be reported under Other Income and Expenses, not under Income from Operations.

Step-by-step explanation:

The statement which is not correct about the multistep income statement is Option A. The correct aspect is that any revenues and expenses that arise from activities outside of the company's main operations are considered to be non-operating and are not included in Income from Operations. Instead, these are reported separately in a section usually titled Other Income and Expenses. Income from Operations is indeed calculated by subtracting operating expenses from operating revenues, which pertains to the company's main business activities.

Option B is correct because the multistep income statement does provide a subtotal of Income before Income Tax Expense. This allows for a clear vision of the amount of income that is subject to tax before the actual tax expense is applied. Option C is also correct stating that Income before Income Tax Expense and Income from Operations can differ if there are any peripheral revenues and expenses, which would be included after the Income from Operations is calculated.

Lastly, Option D is correct; Income from Operations is indeed revenues minus expenses from the company's core business activities.