Question 10

Interest income and gain on sale of assets increase net income.

Both interest income and gain on sale of assets contribute positively to net income by increasing revenue, which enhances profitability.

A) Interest income

Interest income is an essential component of revenue for many businesses, as it represents earnings from investments or loans. When a company earns interest, it directly increases its net income, making this option correct.

B) Gain on sale of assets

A gain on the sale of assets occurs when an asset is sold for more than its book value. This gain is recognized as income and directly contributes to the overall net income, thus making this option correct as well.

C) Income tax expense

Income tax expense represents the amount a company must pay in taxes, which reduces net income. Therefore, this option is incorrect, as it does not increase net income but rather decreases it.

D) Cost of sales

Cost of sales reflects the direct costs attributable to the production of goods sold by a company. Since this expense reduces gross profit, it ultimately decreases net income, making this option incorrect.

Conclusion

In summary, both interest income and gain on sale of assets are critical components that lead to an increase in net income, while income tax expense and cost of sales detract from it. Therefore, options A and B are the only choices that correctly identify items that enhance net income.