On the income statement of a merchandising company interest

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

C. By showing interest income as additional sales revenue and interest expense as an operating expense

D. By offsetting interest income and interest expense and showing the excess as an operating revenue or expense

Solution

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

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

Explanation:

A merchandising company uses the same 4 financial statements: Income statement, statement of retained earnings, balance sheet, and statement of cash flows.The income statement for a merchandiser contains groupings and subheadings necessary to make it easier for investors to read and understand.

Income statement divides both revenues and expenses into operating and nonoperating (other) items.

The major headings of the income statement are explained below:

As the Interest Income and Interesy Expense are not directly related to the business of the merchandising company; the same are reported as separate items of Other Income and expenses below the net operating Income or Loss.