Interest is capitalized when incurred in connection with the construction of plant assets because
A)interest is considered a part of the acquisition cost of the related plant asset.
B)the decision to purchase a plant asset is a business decision separate from the financing decision.
C)many plant assets last longer than 20 years.
D)interest is considered an expense of the period.

Question

Quizplus · Accepted Answer

Interest incurred in connection with the construction of plant assets is considered a cost necessary to bring the asset to its intended use. Therefore, it is capitalized as part of the acquisition cost of the related plant asset rather than expensed in the period in which it is incurred. This treatment is in line with the matching principle, which requires that costs be matched with the revenues they help to generate.

Interest Is Capitalized When Incurred in Connection with the Construction