632598256894

The Dow Chemical single-step income statement does not partition results into intermediate
subtotals. For example, there are no line items identified as either “gross profit” or “operating
income.” Rather, all revenues and expenses are separately listed, and “income before income taxes
and minority interests” is computed in a single step, as total expenses are deducted from total
revenues. However, the Adobe Systems multistep income statement provides both gross profit and
operating income subtotals.
Note that Dow Chemical has several nonrecurring items in its income statements. While they vary
in size, the following would normally be considered to be nonrecurring: restructuring charges,
purchased in-process research and development (IPR&D) charges, and asbestos-related credit.
More nonrecurring items are usually lurking in other statements or footnotes. Note the varying
amounts of sundry income (net) across the three years. Also, Dow Chemical‟s income taxes in 2006
were unusual. The effective tax rate ($1,155 divided by $4,972) is only about 23%, noticeably lower
than the 28% or 29% of the other years.
Nonrecurring Items Located in Income from Continuing Operations
Whether a single or multistep format is used, the composition of income from continuing operations is
the same. It includes all items of revenue, gain, expense, and loss, with the exception of those (1)
identified with discontinued operations, (2) meeting the definition of extraordinary items, and (3)
resulting from the cumulative effect of changes in accounting principles. Because income from
continuing operations excludes only these three items, it follows that all other nonrecurring items of
revenues or gains and expenses or losses are included in this key profit subtotal.