How Are Interest Expense and Interest Paid Reported

question 48

Multiple Choice

How are interest expense and interest paid reported?

• A)Interest expense is reported as an operating item on the income statement and interest paid is reported as an investing activity on the statement of cash flows.
• B)Interest paid is reported as an operating activity on the statement of cash flows and interest expense is reported as a nonoperating expense on the income statement.
• C)Interest expense is reported as an operating expense on the income statement and interest paid is reported as a financing activity on the statement of cash flows.
• D)Interest paid is reported as a financing activity on the statement of cash flows and interest expense is reported as an operating item on the income statement.

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Definitions:

Market Risk

The risk of losses in investments caused by factors that affect the entire market, such as economic recession or political instability.

Treasury Bonds

Long-term government bonds issued by the Treasury Department with maturity periods typically longer than 10 years.

Beta Coefficient

The beta coefficient measures the volatility of a stock or portfolio in comparison to the market as a whole, indicating its relative risk.

Systematic Risk Factors

Factors that affect the overall financial market and cannot be mitigated through diversification. These include interest rates, inflation, and economic recessions.