When Computing the Amount of Interest Cost to Be Capitalized

question 29

Multiple Choice

When computing the amount of interest cost to be capitalized, the concept of "avoidable interest" refers to

• A) the total interest cost actually incurred.
• B) a cost of capital charge for equity.
• C) that portion of total interest cost which would not have been incurred if expenditures for asset construction had not been made.
• D) that portion of average accumulated expenditures on which no interest cost was incurred.

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Definitions:

Nominal Interest Rates

The interest rate before taking inflation into account, representing the face value of interest payments.

Inflation Rate

An increase in the overall price levels of goods and services in an economy during a specified period.

CPI

stands for Consumer Price Index, a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care.

Market Basket

A fixed set of goods and services whose total cost is used to track inflation and the cost of living over time through price changes.