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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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On January 2, 2019, Yuki Yogurt Company decided to replace its obsolete refrigeration system with a more efficient one. The old system had a book value of $9,000 and a fair value of $1,000. Yuki’s new refrigeration system has a fair value of $190,000, for which Yuki paid $189,000 after permitting the contractor to keep the old refrigeration equipment. How much should Yuki capitalize as the cost of the new refrigeration system?

  1. a. $189,000
  2. b. $190,000
  3. c. $197,000
  4. d. $198,000

To determine

Ascertain the amount of cost capitalized by Company Y for the new refrigeration system.

Explanation

Capitalized interest:

Interest Cost incurred to finance the construction of a long-term construction projects are known as capitalized interest.

Justification for the incorrect options of a, c and d:

$189,000, $197,000 and $198,000 are not the amount of cost capitalized for the new refrigeration system.

Justification for the correct option b:

Calculate the amount of cost capitalized for the new refrigeration system:

Amountofcostcapitalized=

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