Which of the following statements is TRUE regarding capitalization of interest? O 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 the building account. The amount of interest cost capitalized during the period should not exceed the actual interest costs incurred. When excess borrowed funds not immediately needed for construction are temporarily invested, any interest carned should be offset against interest cost incurred when determining the amount of interest cost to be capitalized. 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.

Which of the following statements is TRUE regarding capitalization of interest? O 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 the building account. The amount of interest cost capitalized during the period should not exceed the actual interest costs incurred. When excess borrowed funds not immediately needed for construction are temporarily invested, any interest carned should be offset against interest cost incurred when determining the amount of interest cost to be capitalized. 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.

SWFT Individual Income Taxes

43rd Edition

ISBN:9780357391365

Author:YOUNG

Publisher:YOUNG

Chapter14: Property Transactions: Determination Of Gain Or Loss And Basis Considerations

Section: Chapter Questions

Problem 4BCRQ

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GAAP provides guidelines for the inclusion of interest in the initial cost of a self-constructed asset.Required:1. What assets qualify for interest capitalization? What assets do not qualify for interest capitalization?2. Over what period should interest be capitalized?3. Explain average accumulated expenditures.4. Explain the two methods that could be used to determine the appropriate interest rate(s) to be used in capitalizing interest.5. Describe the three steps used to determine the amount of interest capitalized during a reporting period
Which of the following statements is true regarding capitalization of interest? O 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. O 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. O The amount of interest cost capitalized during the period should not exceed the actual interest cost incurred. O 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.
Where the payment of an investment property is deferred beyondnormal credit terms, how should the entity account for anyadditional payment above the cash cost of the asset?
Which of the following is not a condition that must be satisfied before interest capitalization can begin on a qualifying asset? Interest cost is being incurred. Expenditures for the assets have been made. The interest rate is equal to or greater than the company's cost of capital. Activities that are necessary to get the asset ready for its intended use are in progress.
Which of the following is not a condition that must be satisfied before interest capitalization can begin on a qualifying asset? A) Activities that are necessary to get the asset ready for its intended use are in progress. B) The interest rate is equal to or greater than the company's cost of capital. C) Interest cost is being incurred. D) Expenditures for the assets have been made.
7. Which of the following statements is true regarding capitalization of interest? A) 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 B) 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. C) The amount of interest cost capitalized during the period should not exceed the actual interest cost incurred. D) 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.
Which of the following assets do not qualify for capitalization of interest costs incurred during construction of the assets? Select one: a. Assets not currently undergoing the activities necessary to prepare them for their intended use. b. Assets under construction for a company's own use. c. Assets intended for sale or lease that are produced as discrete projects. d. Assets financed through the issuance of long-term debt.
How is the amortized cost for a financial asset calculated? O Amount of original recognition of the asset plus interest earned till date less repayments received till date O Amount of original recognition of the asset plus interest earned till date Amount of original recognition of the asset Manju Fair value of the asset he Problems
When accounting for self-constructed PPE and computing the amount of interest cost to be capitalized, the concept of "avoidable interest" refers to а. that portion of average accumulated expenditures on which no interest cost was incurred O b. that portion of total interest cost which would not have been incurred if expenditures for asset construction had not been made O c. the total interest cost actually incurred d. a cost of capital charge for equity
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) multiplied by an appropriate interest rate to determine the amount of interest to be capitalized. B) offset against interest cost incurred during construction. C) recognized as revenue of the period. D) used to reduce the cost of assets being constructed.
which of the following statements in relation to the cost of the asset is true? A. all of the statements are true B. The cost includes cash equivalent paid C. The cost includes the fair value of any non monetary consideration given to acquire an asset D. The cost includes nonrefundable purchase taxes
Evaluate the following statements:S1. The borrowing cost is capitalized when the entity undertakes activities that are necessary to prepare the asset for the intended use or sale.S2. Borrowing cost incurred while land acquired for building purposes is held without any associated development activity does not qualify for capitalization. a.False, False b.True, True c.False, True d.True, False