NEW YORK - Chesapeake Energy Corporation recorded a strong accounting profit of $558 million but several accounting issues distort the actual number. (1) Preferred shares are a significant part of their balance sheet and after payment of preferred shares the company recorded $515 million of profit. (2) Chesapeake capitalized $185 million of interest in the period. A company is allowed to capitalize interest payments if they are able to prove a future benefit. For instance Cheseapeake pays money to see if their unproved resources have value. They finance these findings with borrowed funds, and since they believe these unproved resources have future value they capitalize a payment of interest instead of expensing it. Without this addition Cheseapeake made $330 million in the quarter. So far this year Cheseapeake has capitalized $503 million of interest payments on unproved properties. (3) Capitalized interest payments will usually depreciate over time, but since they are in Cheseapeake's unproved part of their balance sheet the expense can be kept off the income statement indefinitely.
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