Interest Capitalization: Rules & Example

Instructions:

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question 1 of 3

When would interest capitalization be applied?

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1. Creative Printing, Inc. takes a $100,000 loan and will pay a total of $8,000 for the life of that loan. What amount will appear on their balance sheet if they use the interest capitalization rule for this loan?

2. Which of the following would be an accounting entry for a loan using the interest capitalization method?

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About This Quiz & Worksheet

With this quiz/worksheet combo, you will discover your understanding of interest capitalization and its influence on monthly loan payments in business.

Quiz & Worksheet Goals

These assessments are designed to test your knowledge of the following:

  • When interest capitalization should be used
  • An example of an accounting entry for a loan
  • How to determine a decrease in a loan amount

Skills Practiced

  • Information recall - access the knowledge you've gained regarding when interest capitalization should be used in loan or business transactions
  • Knowledge application - use your knowledge to answer questions about an accounting entry for loans that use the interest capitalization method
  • Interpreting information - verify you can read information regarding how to determine a decrease in the amount of a loan on a monthly balance sheet and interpret it correctly

Additional Learning

You can review the lesson entitled Interest Capitalization: Rules & Example to learn more about interest capitalization and its impact on loans. This lesson will discuss:

  • What an income statement is
  • Rules for different types of loans
  • The meaning of a long-term asset
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