Week 2: multi-step income statement

Question 1

order of items

Answer 1

1. calculation of gross profit
2. calculation of income from operations
3. results of activities not related to operations

Question 2

common ratio to evaluate profitability: gross profit margin

Answer 2

-measures the percentage (%) of each dollar of sales that end up as gross profits
gross profit margin (%) = gross profit/net sales

(larger is generally better)

Question 3

evaluating (total) profitability: profit margin

Answer 3

measures the percentage (%) of each dollar of sales that end up as profits

profit margin (%) = net income(profit)/net sales

larger is generally better

Question 4

what priority is the income statement prepared

Answer 4

the IS is prepared first