Question

On the income statement of a merchandising company, interest income and interest expense are reported: Select one: A. As part of cost of goods sold B. By offsetting interest income and interest expense and showing the excess as an operating revenue or expense C. By showing interest income as additional sales revenue and interest expense as an operating expense D. As separate items of other income and expense below the net operating income or loss

Answer 1

Answer:

On the income statement of a merchandising company, interest income and interest expense are reported:

D. As separate items of other income and expense below the net operating income or loss.

Explanation:

Interest income and expense are financing activities items.  They do not form part of the operating income or loss.  This is why they are shown separately after the determination of the net operating income or loss but before the deduction of income taxes.  The reason for this separation is that for a merchandising company, its operating income or loss does not include earned interest income or interest expense but costs related to the merchandise sold, including selling and administrative expenses.