Under US GAAP, Interest on Loans Secured to Acquire Fixed Assets

question 6

Multiple Choice

Under U.S. GAAP, interest on loans secured to acquire fixed assets must be:

• A) expensed in the period they are incurred.
• B) capitalized as part of the fixed asset cost.
• C) either expensed currently or capitalized as part of the fixed asset cost.
• D) charged against revenue in the year the asset is put into service.

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Definitions:

Bondholder

A bondholder is an investor or entity that owns a bond issued by a borrower, entitling them to receive the bond's face value at maturity, along with periodic interest payments.

TIPS

Treasury Inflation-Protected Securities, which are U.S. government bonds that are indexed to inflation to protect investors from the negative effects of rising prices.

Coupon

The annual interest rate paid by a bond, expressed as a percentage of the face value, or the actual amount paid out to a bondholder annually.

Inflation

The rate at which there's an upward movement in the general price level of goods and services, weakening the purchasing capacity.