If a Company Constructs an Asset Over a Period of Time

question 9

Multiple Choice

If a company constructs an asset over a period of time and borrows money,the amount of interest incurred during construction on the borrowed money is

• A)capitalized as part of the cost of the plant asset.
• B)amortized over the construction period.
• C)reported as interest expense on the income statement.
• D)reported as depletion on the income statement.

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Definitions:

Return On Assets

A financial metric that indicates how profitable a company is relative to its total assets, measuring how efficiently a company uses its assets to generate earnings.

Profit Margin

A financial ratio calculated as net income divided by revenue, indicating the percentage of revenue that is retained as profit after accounting for costs and expenses.

Asset Turnover

A metric indicating how effectively a company utilizes its assets to produce sales income.

Financial Ratio

A numerical comparison derived from a company's financial statements, used to evaluate aspects of its operational efficiency, liquidity, profitability, and solvency.