Because of interest capitalization,an increase in capital expenditures can temporarily decrease the amount of interest expense shown on the income statement.

Question

Quizplus · Accepted Answer

When interest is capitalized, it is added to the cost of the asset and recorded as part of the cost of the asset on the balance sheet. This means that interest expense is not immediately recognized on the income statement, and instead, the cost of the asset is increased. As a result, an increase in capital expenditures can temporarily decrease the amount of interest expense shown on the income statement. However, over time, the interest expense will be recognized as depreciation expense on the income statement.

Because of Interest Capitalization,an Increase in Capital Expenditures Can Temporarily