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NEW QUESTION: 1
Ashley Corporation constructed an office building for its own use. During 2000, the average accumulated expenditure for construction was $4,000,000. At the end of 1999, Ashley had borrowed
$ 1,000,000 specifically for the construction costs. The interest on the construction loan was 11%. The only other debt was $10,000,000 debentures (outstanding all of 2000), with an interest rate of 8%. What are the amounts of interest to be capitalized in 2000 and expensed in 2000?
A. $440,000 and $110,000
B. $110,000 and $800,000
C. $350,000 and $560,000
Answer: C
Explanation:
The amount of interest to be capitalized cannot exceed the appropriate interest rates multiplied by the average accumulated expenditures for construction. It is to be applied first using any specific borrowing. The interest capitalized would be ($1,000,000 x . 11) + ($3,000,000 x .08) = $110,000
+ $240,000 = $350,000. The amount to be expensed would be the remainder of the total interest of
$ 910,000, which is $560,000.




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