Question
One objective of financial statements is to provide information about cash flows. However, one criticism of interest capitalization is that this process may artificially create
One objective of financial statements is to provide information about cash flows. However, one criticism of interest capitalization is that this process may artificially create a difference between earnings and cash flows. Which of the following is true?
A. Interest capitalization does not induce a difference between earnings and cash flows since interest expense is a close approximation to the cash paid for interest.
B. Interest capitalization causes interest expense to differ from cash paid for interest by a greater amount than would otherwise be true.
C. Interest capitalization is an accrual accounting method, so there is no effect on the presentation of cash flows.
D. Interest capitalization induces differences between earnings and cash flows because it is treated differently for tax accounting and financial reporting purposes.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started