Capitalization of interest results in an understatement of the times interest earned.

Name: Capitalization of interest results in an understatement of the times interest earned.
Brand: Quizplus
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Question

Quizplus · Accepted Answer

Capitalization of interest adds the interest expense to the cost of a long-term asset rather than expensing it immediately, which does not affect the times interest earned ratio as this ratio is calculated using income statement figures, where capitalized interest does not immediately appear as an interest expense.

Capitalization of Interest Results in an Understatement of the Times