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

Answer: (D)

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 main subtotals in the multi-step income statement. These subtotals 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 Operating Income. Net Income is the final profit after deducting income taxes from Income Before Taxes.
4. Step 4: Recognize the correct order of these subtotals as they appear on the multi-step income statement: Gross Profit, Operating Income, Income Before Taxes, and Net Income.
5. Step 5: Review the options provided in the problem and match them against the correct order of subtotals to confirm the answer.