Question 17Q
Question
Indicate the section of a multiple-step income statement in which each of the following is shown.
(a) Loss on inventory write-down.
(b) Loss from strike.
(c) Bad debt expense.
(d) Loss on disposal of a discontinued operation.
(e) Gain on sale of machinery.
(f) Interest revenue.
(g) Depreciation expense.
(h) Material write-offs of notes receivable.
Step-by-Step Solution
VerifiedThe various items in the income statement are shown on the basis of their association with the operational and non-operational activities and are bifurcated accordingly.
As the name suggests, the multi-step income statement contains different sections. It categorizes revenues and associated expenses in operating and non-operating units for a better understanding.
Serial No. | Section | Explanation |
(a) | Extraordinary section | Loss on inventory write-down is non-recurring; hence should be shown as an extraordinary loss. |
(b) | Extraordinary section | A strike is a non-operational activity; hence respective loss should be reported under the extraordinary section. |
(c) | Operation section | Bad debts are part of operating activities; hence related expenses should be reported as operating expenses. |
(d) | Discontinued operations section | Loss belongs to discontinued operations should be shown separately in the discontinued operation section. |
(e) | Extraordinary section | Gain on sale of an asset is non-operating activity; hence the same should be reported as an extraordinary gain. |
(f) | Operating section | Interest revenues are part of business operations; therefore should be reported in the operating section. |
(g) | Operating section | Depreciation belongs to business operations; hence should be reported as an operating expense. |
(h) | Operating section | Writing off materials linked with notes receivable are associated with business operations; hence should be reported under the operating section. |