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Intermediate Accounting: Reporting...

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

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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A company borrows some money, which it uses to acquire a parcel of land on which it plans to construct a building. Before construction of the building begins, a period of time passes while the company obtains the necessary planning permission. May the company capitalize interest during this period? If so, should it capitalize the interest to the land or the building account?

To determine

Explain whether the company must capitalize the interest to the land or the building account.

Explanation

Capitalized interest:

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

The asset is qualified for the capitalization of interest since t...

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