Why "Interest Expense" is included under Operating expense?

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    Topic
  • #183864
    infinity
    Member

    Coffey Corp.’s trial balance of Income Statement Accounts for the year ended December 31 as follows:

    Debit Credit

    Net sales $ 1,600,000 (credit)

    Cost of goods sold $ 960,000 (debit)

    Selling expenses 235,000 (debit)

    Administrative expenses 150,000 (debit)

    Interest expense 25,000 (debit)

    Gain on debt extinguishment 10,000 (credit)

    Totals (Debit) $ 1,370,000 (Credit) $ 1,610,000

    Coffey uses U.S. GAAP and has an income tax rate of 30%. The gain on debt extinguishment is considered a usual and recurring part of Coffey’s operations. Coffey prepares a multiple-step income statement.

    Income from continuing operations before income tax is:

    Answer from BECKER

    Explanation

    Choice “d” is correct. $240,000, calculated as follows:

    Net sales $ 1,600,000

    Cost of goods sold (960,000)

    Selling expenses (235,000)

    Administrative expenses (150,000)

    Interest expense (25,000)

    Gain on debt extinguishment 10,000

    Choice “d” is correct. $240,000

    The gain on debt extinguishment does not meet the unusual and infrequent criteria so it is included as part of income from continuing operations.

    BEC 74

    Never give up, never surrender.

Viewing 15 replies - 1 through 15 (of 20 total)
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  • #517909
    Anonymous
    Inactive

    Yes, interest expense is, and so is interest received/interest income, cash inflow and cash outflow, respectively under US GAAP.

    However under IFRS:

    Interest Received > CFO or CFI

    Interest Paid > CFO or CFF

    *Page F7-39 of Becker*

    #517931
    Anonymous
    Inactive

    Yes, interest expense is, and so is interest received/interest income, cash inflow and cash outflow, respectively under US GAAP.

    However under IFRS:

    Interest Received > CFO or CFI

    Interest Paid > CFO or CFF

    *Page F7-39 of Becker*

    #517910
    infinity
    Member

    if is in a multiple- step income statement, should interest expense under Non Operating section ?

    BEC 74

    Never give up, never surrender.

    #517933
    infinity
    Member

    if is in a multiple- step income statement, should interest expense under Non Operating section ?

    BEC 74

    Never give up, never surrender.

    #517911
    infinity
    Member

    if is in a multiple- step income statement, should interest expense under Non Operating section ?

    BEC 74

    Never give up, never surrender.

    #517935
    infinity
    Member

    if is in a multiple- step income statement, should interest expense under Non Operating section ?

    BEC 74

    Never give up, never surrender.

    #517912
    Anonymous
    Inactive

    Opps, pardon me @Infinity. I thought your question is about Statement of Cash Flows. My mind is just all over the place. I'm in panic mode and really cramming because this is the last weekend of this testing window.

    Earlier, I was practicing on SIM for SCF of NFPO, and I was overwhelmed. It's so frustrating that I could not recall the items under operating, investing & financing activities. I scored so poorly. The problem says, SCF for NFPO is just the same for commercial accounting. So from F9, I went back to F7 to review the activities. Then this question….

    Anyway, you're right. Interest expense cannot be under (main) operating section of I/S. Interest expense is under non-operating section per Page F1-19.

    Heaven and earth! When will this turmoil end?

    #517937
    Anonymous
    Inactive

    Opps, pardon me @Infinity. I thought your question is about Statement of Cash Flows. My mind is just all over the place. I'm in panic mode and really cramming because this is the last weekend of this testing window.

    Earlier, I was practicing on SIM for SCF of NFPO, and I was overwhelmed. It's so frustrating that I could not recall the items under operating, investing & financing activities. I scored so poorly. The problem says, SCF for NFPO is just the same for commercial accounting. So from F9, I went back to F7 to review the activities. Then this question….

    Anyway, you're right. Interest expense cannot be under (main) operating section of I/S. Interest expense is under non-operating section per Page F1-19.

    Heaven and earth! When will this turmoil end?

    #517913
    jasonrobbins
    Member

    It asks for continuing operations, not operating vs non-operating.

    AUD- 97 1x
    REG- 81 1x
    BEC- 79 1x
    FAR- 88 1x

    DONE!

    10/1/12 to 2/28/14

    #517939
    jasonrobbins
    Member

    It asks for continuing operations, not operating vs non-operating.

    AUD- 97 1x
    REG- 81 1x
    BEC- 79 1x
    FAR- 88 1x

    DONE!

    10/1/12 to 2/28/14

    #517914
    Anonymous
    Inactive

    Interest expense is a non-operating expense included in continuing operations on the IS. I think you might be mixing up continuing and operating. Continuing operations is the umbrella over both non-operating and operating activities, and so includes interest expense since income expense is a part of non-operating expenses.

    It'd look like this:

    Continuing Operations:

    Operating Activities: Sales, Cost of sales, Selling expenses, etc. $30

    Non Operating Activites: Interest Expense, Interest income, loss on unusual OR infrequent items, etc. $20

    Total Income from Continuing Operations (aka Net Income, and what the question is looking for): Combination of Operating/Non-Operating – $50

    #517941
    Anonymous
    Inactive

    Interest expense is a non-operating expense included in continuing operations on the IS. I think you might be mixing up continuing and operating. Continuing operations is the umbrella over both non-operating and operating activities, and so includes interest expense since income expense is a part of non-operating expenses.

    It'd look like this:

    Continuing Operations:

    Operating Activities: Sales, Cost of sales, Selling expenses, etc. $30

    Non Operating Activites: Interest Expense, Interest income, loss on unusual OR infrequent items, etc. $20

    Total Income from Continuing Operations (aka Net Income, and what the question is looking for): Combination of Operating/Non-Operating – $50

    #517915
    pia ach
    Member

    Continuing operations includes operating and non operating activities

    Finally done!!! Experience-pending. Ethics- Pending.
    Reg 78 / 73/82.
    Aud 74/89.
    BEC 72 /78.
    FAR 74/ 73/ 82.

    #517943
    pia ach
    Member

    Continuing operations includes operating and non operating activities

    Finally done!!! Experience-pending. Ethics- Pending.
    Reg 78 / 73/82.
    Aud 74/89.
    BEC 72 /78.
    FAR 74/ 73/ 82.

    #517916
    zieba
    Participant

    Amor,

    If this question comes up in the exam, rest easy knowing the entire presentation of statement of cash flows along with related categories cab be found the AL

    AUD - 75*, 88 done 5/14! (*exp)
    BEC - 74 , 77
    REG - 65 , 76 (10 point combooo!!)
    FAR - 69 , 75

    Dr: perseverance
    Dr: intelligence
    Dr: luck
    . Cr: . advisory score

Viewing 15 replies - 1 through 15 (of 20 total)
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