Question Details

Assets that qualify for interest cost capitalization 



1.	To be consistent with the historical cost principle, overhead costs incurred by an enterprise constructing its own building should be
a.	allocated on the basis of lost production.
b.	eliminated completely from the cost of the asset.
c.	allocated on an opportunity cost basis.
d.	allocated on a pro rata basis between the asset and normal operations.

2.	Which of the following costs are capitalized for self-constructed assets?
a.	Materials and labor only
b.	Labor and overhead only
c.	Materials and overhead only
d.	Materials, labor, and overhead

	3.	Which of the following assets do not qualify for capitalization of interest costs incurred during construction of the assets?
a.	Assets under construction for an enterprise's own use.
b.	Assets intended for sale or lease that are produced as discrete projects.
c.	Assets financed through the issuance of long-term debt.
d.	Assets not currently undergoing the activities necessary to prepare them for their intended use.

	4.	Assets that qualify for interest cost capitalization include
a.	assets under construction for a company's own use.
b.	assets that are ready for their intended use in the earnings of the company.
c.	assets that are not currently being used because of excess capacity.
d.	All of these assets qualify for interest cost capitalization.

	5.	When computing the amount of interest cost to be capitalized, the concept of "avoidable interest" refers to
a.	the total interest cost actually incurred.
b.	a cost of capital charge for stockholders' equity.
c.	that portion of total interest cost which would not have been incurred if expenditures for asset construction had not been made.
d.	that portion of average accumulated expenditures on which no interest cost was incurred.





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