Problem - Hunter Company is in the planning phase for a major plant expansion, which will involve the construction of a new warehouse. The construction is expected to take approximately 18 months and cost $1.8 million. The construction will be financed with a 10-year loan from Century Bank (The loan will be taken out on the first day of construction). The warehouse will be built on land that is already owned by the company. The land was purchased last month with a 15-year, $1 million loan from Foundation Bank. The company's president, Sam Stone, knows that the material, labor and overhead costs related to construction of the warehouse can be capitalized. However, the president does not believe that any interest cost incurred during construction on the construction loan or the loan for the land can be capitalized, since it is a financing expense.
Research the generally accepted accounting principles and prepare a short memo to the president regarding his conclusion about interest cost. You must cite your reference and applicable paragraph numbers.