Question

Question 11 (1 point) On January 1, 2018, Dreamworld Co. began construction of a new warehouse. The building was finished and ready for use on September 30, 2019. Expenditures on the project were as follows: January 1, 2018 $300,000 September 1, 2018 $450,000 December 31, 2018 $450,000 March 31, 2019 $450,000 September 30, 2019 $300,000 Dreamworld had $5,000,000 in 12% bonds outstanding through both years. The average accumulated expenditures for 2019 by the end of the construction period was: $1,950,000 $1,554,000. $1.254.000 $975,000 Question 12 (1 point) Interest is not capitalized for: Assets that are constructed as discrete projects for sale or lease. Assets constructed for a company's own use. Inventories routinely and repetitively produced in large quantities. Interest is capitalized for all of these items.

Answer 1

1)correct option is "B"- 1554000

For 2018

Date	Amount	*	Period of outstanding	=	Accumulated expenditure for 2018
1/1/2018	300000		12/12		300000
1/9/2018	450000		4/12    [1Sep -31Dec]		150000
31/12/2018	450000		0/12		0
Total	1200000				450000
Capitalized interest for 2018	450000*12%= 54000
Total balance at end	1254000

For 2019::Project is completed in September (so total 9months)

Date	Amount	*	Period of outstanding	=	Accumulated expenditure for 2018
1/1/2019	1254000		9/9		1254000
31/3/2019	450000		6/9 [1Apr -30Sep ]		300000
30/9/2019	300000		0/9		0
Total	2004000				1554000

12)

Correct option is "c"

As per the definition ,Interest should be capitalized only in respect of qualifying asset which means asset constructed for sale or lease or for company's own use is to be capitalized .

Interest is not to be capitalized on inventory or other routinely produced asset

13)Correct option is "B"-Land improvement

cost of construction of a new parking lot on a land on which office building is already constructed is an improvement to land .

14)Correct option is "A"

Average accumulated expenditure = Average Amount of debt outstanding for a period * interest rate