Peak Industrial Corp. recently secured a loan to fund its new manufacturing facility. As part of the loan agreement, Peak Industrial incurred certain financing fees. How should these financing fees be treated in Peak Industrial’s financial statements? A)The fees should be immediately expensed in the income statement as they are directly associated with the loan acquisition. B) The fees should be capitalized and presented as a direct reduction of the carrying amount of the loan liability, amortizing the fees over the life of the loan. C) The fees should be recognized as a separate asset on the balance sheet and amortized over the life of the loan using a straight-line method. D)The fees should be deferred and amortized over the maximum possible term of the loan, including all extension options, regardless of the initial term agreed upon.
Peak Industrial Corp. recently secured a loan to fund its new manufacturing facility. As part of the loan agreement, Peak Industrial incurred certain financing fees. How should these financing fees be treated in Peak Industrial’s financial statements? A)The fees should be immediately expensed in the income statement as they are directly associated with the loan acquisition. B) The fees should be capitalized and presented as a direct reduction of the carrying amount of the loan liability, amortizing the fees over the life of the loan. C) The fees should be recognized as a separate asset on the balance sheet and amortized over the life of the loan using a straight-line method. D)The fees should be deferred and amortized over the maximum possible term of the loan, including all extension options, regardless of the initial term agreed upon.
Financial Accounting Intro Concepts Meth/Uses
14th Edition
ISBN:9781285595047
Author:Weil
Publisher:Weil
Chapter12: Liabilities: Off-balance-sheet Financing, Retirement Benefits, And Income Taxes
Section: Chapter Questions
Problem 2Q
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Peak Industrial Corp. recently secured a loan to fund its new manufacturing facility. As part of the loan agreement, Peak Industrial incurred certain financing fees. How should these financing fees be treated in Peak Industrial’s financial statements? A)The fees should be immediately expensed in the income statement as they are directly associated with the loan acquisition. B) The fees should be capitalized and presented as a direct reduction of the carrying amount of the loan liability, amortizing the fees over the life of the loan. C) The fees should be recognized as a separate asset on the balance sheet and amortized over the life of the loan using a straight-line method. D)The fees should be deferred and amortized over the maximum possible term of the loan, including all extension options, regardless of the initial term agreed upon.
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