In Dealing with Capitalized Costs, You Might Find Deferred Charges

question 11

Multiple Choice

In dealing with capitalized costs, you might find deferred charges of interest on the balance sheet. What should you do?

• A) Assume they are accurately capitalized
• B) Suspect a fraud may have occurred but try to prove innocence
• C) Look for ways the company could have accidentally deferred the charges
• D) Deferred interest charges are perfectly normal on the balance sheet

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Definitions:

EBIT

Excluding interest and tax payments, Earnings Before Interest and Taxes provides an assessment of a firm's economic performance.

Leverage

The use of borrowed money (debt) to amplify the potential return on investment.

EAT

Earnings After Tax, which refers to the net profit a company makes after deducting all its costs, including taxes.

Gross Margin

The difference between revenue and the cost of goods sold, divided by revenue, expressed as a percentage.