Chapter 20 - words and concepts

Question 1

floating interest rate

Answer 1

You can choose between a fixed interest rate (where the rate doesn’t change for the duration of your loan) and a variable, or “floating,”interest rate (where it can fluctuate).

Question 2

What does capitalize mean?

Answer 2

The word capitalize means to record the amount of an item in a balance sheet account as opposed to the income statement.

Capitalizing a lease:

If the is the lease os really a disguised purchase and financing arrangement, then it should be capitalized. The forklift truck should appear on the balance sheet as part of the company’s equipment, and the amount of principal owed needs to be **reported as a liability on the balance sheet. **