7. When does the period of interest capitalization begin? A. When expenditures f

Question

7. When does the period of interest capitalization begin?

A. When expenditures for the asset have been made.

B. When activities that are necessary to get it ready for its intended use are in progress

C. When interest cost is being incurred.

D. Only when all three of the above conditions are met.

8. The Greene Co. started using the dollar-value LIFO method of inventory in 2005, with ending inventory of $100,000. In 2006 the amount of inventory in base year dollars increased by $40,000. In 2007 the amount of inventory in base year dollars decreased by $30,000. Which of the following is true when computing the ending inventory for 2007.

A. The ending inventory for 12/31/2007 will consist of layers from 2005, 2006 and 2007

B. The ending inventory for 12/31/2007 will consist of layers from 2005 and 2007 only

C. The ending inventory for 12/31/2007 will consist of layers from 2005 and 2006 only

D. The ending inventory for 12/31/2007 will consist of only a 2007 layer

10.

The Fortuna Co. purchased a computer on 1/1/07 for $10,000. Annual depreciation on the asset was $1,000 per year. In 2010, the asset was sold for $5,000. Assume that the asset was sold on 10/1/10 instead of 1/1/10. What would be the gain or loss from the sale?

A. Loss of $2,000

B. Gain of $1,700

C. Gain of $1,250

D. Loss of $1,250

13. The Thompson Co. is building a ship for a customer and computed avoidable interest cost of $15,000 and actual interest cost of $12,000. What is the amount of interest that should be added to the cost of the ship?

A. 12000

B. 15000

C. 27000

D. 3000

Explanation / Answer

7.The capitalization period begins when all three of the following conditions have been met:

(1) Expenditures for the asset have been made (i.e., the firm has made cash payments or has incurred debt for construction of the asset).

(2) Necessary activities to get the asset ready for its intended use are in progress (i.e., actual construction work is taking place)

(3) Interest cost of some kind is being incurred (i.e., the firm has some type of interest-bearing debt outstanding). This debt need not be specific debt incurred on the asset. It may be general debt such as bonds payable. Therefore a company may capitalize interest cost even though the entire construction cost of the asset was paid for in cash, so long as the company has some type of interest-bearing debt outstanding.

The capitalization period ends when any one of these three conditions is no longer being met.

so and is D.

8.A. The ending inventory for 12/31/2007 will consist of layers from 2005, 2006 and 2007

10.

Sale value is $5000

Book value =$10000

(-)Depreciation{1000*3+0.75*1000}=$3750

Net book value=$6250

(-)Sale value=$5000

Gain on sale = $1250

*Depreciation of .75*1000 is for 9months=750

13.Avoidable interest cost is not to be considered for any decision so $12000 of actual interest cost is to be considered hence ans is A.12000

Related Questions

Navigate

• Browse (All)
• Browse 7
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.