Which of the following is true when a company constructs an asset for its own use?
A)Labor and material expenses for construction will increase.
B)Capitalized interest on construction loans will increase interest expense.
C)Assets will increase for labor, material, and interest costs paid for constructing the asset.
D)Net income will be decreases for capitalized costs of construction.

Question

Quizplus · Accepted Answer

When a company constructs an asset for its own use, it will incur labor, material, and interest costs for the construction. These costs will be capitalized and added to the cost of the asset, thereby increasing the value of the asset on the balance sheet. This will result in an increase in the company's assets but no immediate impact on the net income. Only when the asset is used, will the related expenses be recognized in the form of depreciation expenses, which will reduce net income over its useful life.

Which of the Following Is True When a Company Constructs