Which of the following correctly lists the order of the main subtotals that appear on a multi-step income statement?

• A. Net Income, Gross Profit, Operating Income, Income Before Taxes
• B. Operating Income, Gross Profit, Net Income, Income Before Taxes
• C. Gross Profit, Operating Income, Income Before Taxes, Net Income
• D. Gross Profit, Net Income, Operating Income, Income Before Taxes

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the structure of a multi-step income statement. A multi-step income statement separates operating revenues and expenses from non-operating items, providing a detailed view of a company's financial performance.
2. Step 2: Identify the key subtotals in the multi-step income statement. These typically include: Gross Profit, Operating Income, Income Before Taxes, and Net Income.
3. Step 3: Define each subtotal: Gross Profit is calculated as Sales Revenue minus Cost of Goods Sold (COGS). Operating Income is derived by subtracting operating expenses from Gross Profit. Income Before Taxes is calculated by adding or subtracting non-operating items (e.g., interest income or expense) to/from Operating Income. Finally, Net Income is determined by subtracting income tax expense from Income Before Taxes.
4. Step 4: Arrange the subtotals in the correct order as they appear on the multi-step income statement: Gross Profit, Operating Income, Income Before Taxes, and Net Income.
5. Step 5: Verify the correct answer by comparing the provided options to the standard order of subtotals in a multi-step income statement. The correct answer is: 'Gross Profit, Operating Income, Income Before Taxes, Net Income.'