I am looking for help with a case for my Finance class. I have completed the cas

Question

I am looking for help with a case for my Finance class. I have completed the case, but I would really like someone to look over my work and see if it is correct before turning it in because I really need a good grade in the class. I am inlcuding images of the case as well as the source for a formula I used. My answers are at the end. Thanks!

My Answers:

A)

40,707

28,518

B)

C)

D) Capitalized interest is recognized as an expense on the income statement or in the notes. It also must be added to the denominator of the times intrest earned ratio.

E) Income will have less variability from capitalizing intrest expenses. It will also lead to higher profitability in the early years.

F) Times Interest Earned:

I would appreciate your help!

40,707

28,518

Explanation / Answer

D) Capitalized interest is recognized as an expense in the period, when it actually occurs.

E) There were majorly two effects of interest capitalization. Firstly, it increased the fixed assets in the balance sheet making it stronger and secondly, it reduced the tax liabilities for the firm as interest expense was reduced from gross profit.

Rest answers seem fine to me.

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