Problem: Racker Co. purchased land as a factory site for $600,000. Racker paid $60,000 to tear down two buildings on the land. Salvage was sold for $5,400. Legal fees of $3,480 were paid for title investigation and making the purchase. Architect's fees were $31,200. Title insurance cost $2,400, and liability insurance during construction cost $2,600. Excavation cost $10,440. The contractor was paid $2,200,000. An assessment made by the city for pavement was $6,400. Interest costs during construction were $170,000.
Question 1: The cost of the building that should be recorded by Racker Co. is
a. $2,403,800.
b. $2,404,840.
c. $2,413,200.
d. $2,414,240.
Question 2; The cost of the land that should be recorded by Racker Co. is
a. $660,480.
b. $666,880.
c. $669,880.
d. $676,280.
Question 3: In calculating the amount of interest cost to capitalize, "avoidable interest" refers to:
a. the total interest cost actually incurred.
b. a cost of capital charge for stockholders' equity.
c. that portion of total interest cost which would not have been incurred if expenditures for asset construction had not been made.
d. that portion of average accumulated expenditures on which no interest cost was incurred.