Interest Is Capitalized When Incurred in Connection with the Construction

question 28

Multiple Choice

Interest is capitalized when incurred in connection with the construction of plant assets because

• A)interest is considered a part of the acquisition cost of the related plant asset.
• B)the decision to purchase a plant asset is a business decision separate from the financing decision.
• C)many plant assets last longer than 20 years.
• D)interest is considered an expense of the period.

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Definitions:

Interest Income

The revenue earned from lending money or investing in interest-bearing financial instruments, such as bonds or savings accounts.

David Ricardo

A British economist known for his contributions to classical economics, especially his theory of comparative advantage in trade.

Supply and Demand

Fundamental economic concepts describing the relationship between the availability of products and the desires of consumers, dictating the price of goods and services.

Compound Interest

Interest calculated on the initial principal, which also includes all of the accumulated interest from previous periods on a deposit or loan.