Final answer:
A multiple-step income statement involves calculating gross profit, operating income, and net income after taxes, including the calculation of taxes and EPS disclosure. Service revenue should be categorized as nonoperating.
Step-by-step explanation:
Preparing a Multiple-Step Income Statement
To prepare a multiple-step income statement that includes tax allocation and earnings per share disclosure, we will follow these general steps:
- Calculate the gross profit by subtracting the cost of goods sold from sales revenue. If there is service revenue, categorize it as nonoperating revenue.
- Subtract operating expenses from the gross profit to determine operating income.
- Add nonoperating revenues and subtract nonoperating expenses to find the income before tax.
- Calculate the amount of taxes for each level of income by applying the tax rate to the income before tax.
- Subtract the taxes from the income before tax to get the net income after taxes.
- Finally, disclose earnings per share (EPS) by dividing the net income after taxes by the number of outstanding shares.
Assuming a simplified set of numbers, if you have sales revenue of $200,000 and cost of goods sold is $85,000, your gross profit would be $115,000. Operating expenses and other nonoperating expenses would be subtracted to reach income before tax. After calculating taxes, you would then arrive at your net income after taxes, which is divided by the number of shares to obtain EPS.