Final answer:
Choice D is incorrect for a service company since these companies do not calculate gross profit on their income statement. Instead, they report total revenue and total costs to determine profit. Gross profit is relevant for companies dealing with physical goods.
Step-by-step explanation:
For a service company, Choice D, which states that an income statement includes gross profit, is not true. A service company typically does not sell physical goods; therefore, it does not have a cost of goods sold (COGS), which is necessary to calculate gross profit. Instead, the income statement of a service company would highlight revenues from services provided and the operating expenses associated with providing those services. Gross profit is usually associated with a manufacturing or retail company where there is a direct cost tied to the product being sold. To determine profitability for a service firm, one would consider the difference between total revenue and total cost.
Comparing this to Choice B, which might imply a manufacturing context like Toyota making and selling cars, where a gross profit figure would be more applicable, illustrates the distinction in financial reporting between different types of companies.
The measure for service firms often revolves around profit, which is the revenue after all business expenses have been paid. This is an essential metric for any business, as each tries to maximize profit by increasing revenue, reducing costs, or both.