Question

Interest costs can be capitalized on

A) interest incurred during the period of construction on loans for self-constructed assets.
B) interest incurred on notes payable used to purchase inventory for resale.
C) interest incurred on installment loans secured by assets currently used in operations.
D) none of these choices; interest charges must always be expensed.

Answer 1

Answer:

interest incurred during the period of construction on loans for self-constructed assets

explanation:

Capitalized interest is the cost to borrow for acquiring or constructing an asset that is of long-term. This cost is not done immediately on the income statement of the company.

Long term assets are financed through debt by some companies. These companies have the permission to do the costing of the assets over the long-term.

When interest costs are capitalised, companies are able to get revenue from this asset so they can pay for it as time goes on.

Answer 2

Answer:

A) interest incurred during the period of construction on loans for self-constructed assets.

Explanation:

Interest can only be capitalized (and later amortized) when they result from loans used to build assets for the company. E.g. a company that is building a new factory and uses a bank credit to pay for the construction. All the interests incurred during the construction process can be included in the construction cost of the factory.