For companies in an expansion phase, capitalizing interest may result in higher earnings over an extended period of time as the amount of interest amortization will not catch up with the amount of interest capitalized in the current period.

Question

Quizplus · Accepted Answer

Capitalizing interest means adding the interest cost to the balance sheet as an asset, rather than expensing it in the current period. This can result in higher earnings over an extended period of time since the amount of interest amortization (i.e. gradually expensing the interest over time) will not catch up with the amount of interest capitalized in the current period. Therefore, the answer is true.

For Companies in an Expansion Phase, Capitalizing Interest May Result