In case study C10-7 an accountant is asked by the CEO to capitalize 2015 costs for an architect,
accounting costs and any other costs they can find to increase the amount of interest that they
can capitalize in the 2016 year that has just closed. The accountant is also asked to add lots of
overhead to the project costs. After the CEO leaves the accountant finds correspondence
between the company and the architect starting January 2, 2015. If I was the accountant in this
situation, I would really have to take my time to figure out what (if anything) I can do to benefit
the company and fulfill the CEO’s request while also being honest and upholding the GAAP
principle of utmost good faith (Fernando, 2022).
It is less than ideal to report the 2015 capitalized interest in 2016 but from an internet search I
could not find anything that said it was forbidden. I’m not sure if it would require a prior period
adjustment to make the interest journal entry. I also understand that the CEO is asking for this to
be done to decrease expenses in 2016; however, if there are legitimate interest costs that were
missed and can be depreciated, I believe there is a way to enter and notate that they were from a
prior year. The first step would be to look in the file and see if there are any paid invoices from
the architect for this specific project. According to Whalen, Jones and Pagach (2017), “The
capitalization period begins when (1) expenditures for the asset have begun, (2) activities that are
