Question Details

When funds are borrowed to pay for construction 



1.	The period of time during which interest must be capitalized ends when
a.	the asset is substantially complete and ready for its intended use.
b.	no further interest cost is being incurred.
c.	the asset is abandoned, sold, or fully depreciated.
d.	the activities that are necessary to get the asset ready for its intended use have begun.

	2.	Which of the following statements is true regarding capitalization of interest?
a.	Interest cost capitalized in connection with the purchase of land to be used as a building site should be debited to the land account and not to the building account.
b.	The amount of interest cost capitalized during the period should not exceed the actual interest cost incurred.
c.	When excess borrowed funds not immediately needed for construction are temporarily invested, any interest earned should be offset against interest cost incurred when determining the amount of interest cost to be capitalized.
d.	The minimum amount of interest to be capitalized is determined by multiplying a weighted average interest rate by the amount of average accumulated expenditures on qualifying assets during the period.

3.    	Construction of a qualifying asset is started on April 1 and finished on December 1. The fraction used to multiply an expenditure made on April 1 to find weighted-average accumulated expenditures is
a.	8/8.
b.	8/12.
c.	9/12.
d.	11/12.

	4.	When funds are borrowed to pay for construction of assets that qualify for capitalization of interest, the excess funds not needed to pay for construction may be temporarily invested in interest-bearing securities. Interest earned on these temporary investments should be
a.	offset against interest cost incurred during construction.
b.	used to reduce the cost of assets being constructed.
c.	multiplied by an appropriate interest rate to determine the amount of interest to be capitalized.
d.	recognized as revenue of the period.

	5.	Interest cost that is capitalized should
a.	be written off over the remaining term of the debt.
b.	be accumulated in a separate deferred charge account and written off equally over a 40-year period.
c.	not be written off until the related asset is fully depreciated or disposed of.
d.	none of these.





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