Multiple Choice – 2 points each
When computing the amount of interest cost to be capitalized, the concept of
"avoidable interest" refers to
the total interest cost actually incurred.
a cost of capital charge for stockholders' equity.
that portion of total interest cost which would not have been incurred if
expenditures for asset construction had not been made.
that portion of average accumulated expenditures on which no interest cost
The period of time during which interest must be capitalized ends when
the asset is substantially complete and ready for its intended use.
no further interest cost is being incurred.
the asset is abandoned, sold, or fully depreciated.
the activities that are necessary to get the asset ready for its intended use
Use the following information for questions 3 and 4.
Seiler Co. purchased land as a factory site for $600,000. Seiler paid $60,000 to tear down
two buildings on the land. Salvage was sold for $5,400. Legal fees of $3,480 were paid
for title investigation and making the purchase. Architect's fees were $31,200. Title
insurance cost $2,400, and liability insurance during construction cost $2,600. Excavation
cost $10,440. The contractor was paid $2,200,000. An assessment made by the city for
pavement was $6,400.
Interest costs during construction were $170,000.
The cost of the land that should be recorded by Seiler Co. is
600,000 + 60,000 – 5,400 +3,480 +2,400 +6,400 = 666,880.
The cost of the building that should be recorded by Seiler Co. is