[yokomachi]

I can’t understand why this answer is C. Does anyone can explain ?

---

At the beginning of the year, Cann Co. started construction on a new $2 million addition to its plant. Total

construction expenditures made during the year were $200,000 on January 2, $600,000 on May 1, and

$300,000 on December 1. On January 2, the company borrowed $500,000 for the construction at 12%.

The only other outstanding debt the company had was a 10% interest rate, long-term mortgage of

$800,000, which had been outstanding the entire year. What amount of interest should Cann capitalize

as part of the cost of the plant addition?

a. $140,000

b. $132,000

c. $72,500

d. $60,000

[Anonymous]

This thread is hilarious! I never thought capitalized interest could cause a fight…

[Sandra]

hahhaha. Throw a couple of tired/grumpy/flustered studying students all into one forum and watch. Good thing we aren't all face to face.

[goodluck2everyone]

@sandra

this is the way Wiley does it but the way they explained it wasn't making sense to me. I finally found a website that explained it well and went from there

https://cpaclass.com/gaap/sfas/gaap-sfas-34.htm

BEC- 80
REG- 68, 71, July
AUD- 61 , 84
FAR- -- 75 🙂

[Sandra]

I think you are spot on in your answer. But giving someone shit about their failed test is probably not helpful. That was my point.

That link is handy though. Thanks!

[goodluck2everyone]

you're welcome =)

We all need someone to call us out on our bs and put us in our place. Minimorty is good in that regard.

BEC- 80
REG- 68, 71, July
AUD- 61 , 84
FAR- -- 75 🙂

[Anonymous]

@goodluck2everyone: Weren't you the one who was offended by what Mini and baseballcpa said to you regarding your exam experience and few other issues? I remember posting something to support you as did many other people did.

Then, why in the world would you do the EXACT thing to Kricket? Mini and baseballcpa didn't make a snarly comment about you failing an exam (rather mentioned that you may have been unprepared), yet you were offended. Didn't you think about how your comment would come across as rude to Kricket? I understand calling someone out on their bs, but Kricket was trying to help as she does almost every time.

I'm sorry, but I just had to post to defend Kricket. Very rude, and though it may not have been your intention, it came out that way.

I know we are all frustrated and it often comes out in the wrong way, but please, let's be respectful to each other. We are all working hard to pass this thing and don't need any negative energy around us. Be thankful of others' advice, and if you don't like it, don't take it…but please don't insult anyone.

@Kricket, You can and you WILL pass this exam. You have worked so hard, and have been inspiration to so many of us.

[goodluck2everyone]

So it is rude nowadays to tell a person that the way they are solving a math problem is wrong?

“How about you do it your way on your exam and I'll do it mine? But lets be civil and not flat out call someone wrong when you aren't showing any calculations or citing any standards to support your argument.”

This post blew my mind. She tells me that I didn't provide calculations, which I clearly did in a previous post. Also, how was I not being civil? I simply told her that her method was incorrect and how I came upon that conclusion. But the worst part of all was her first sentence. It's okay to be wrong about something but when someone shows you the correct way to do it, don't pull out the ‘ole “I'll do it my way, you do it your way line” especially considering they are clearly wrong and have failed this section of the exam 4/5 times. You'd think she'd be more open to help and not be defensive.

As you can see, I'm 0/2 on REG now and I should be the last person on this forum discrediting others on how to pass that section. Get it. Got it. Good.

BEC- 80
REG- 68, 71, July
AUD- 61 , 84
FAR- -- 75 🙂

[Anonymous]

It's not rude to call someone out for their method of solving a problem, but it IS rude to basically tell someone, “don't offer advise since you haven't passed it yet…”

I passed REG on 3rd try, but that doesn't make me stupid nor does it prevent my right to offer advise on how to pass REG. I failed REG not because I'm dumb or don't get accounting, but because I skipped lectures and simply didn't study enough. They are million of reasons why people don't pass a section on the 1st, 2nd try, 3rd, and so fourth….but that doesn't make them inferior nor does it take their rights away to offer help. As a matter of fact, you & I probably know more REG than people who have passed the section on the first try…we have seen the material way more than they probably have.

As far as the actual question goes, people are free to dispute what method to use and etc. All I'm saying is, be respectful. One more thing, I have nothing against you and I hope we all pass these exams soon. We all have worked hard and we deserve to enjoy our life…without these CPA books;)

[goodluck2everyone]

I'm not saying “dont offer advise since you havent passed”

im saying “dont discredit someone else's method and get defensive when someone is trying to help you given your track record on this exam”

I did my research and found the correct method and showed it to her and the forum. I dont respect someone telling me to just do it my way as if we're writing songs here or something. I don't want thank yous but I also don't want to be discredited for no reason. She should be the first person to soak up any and all advice.

BEC- 80
REG- 68, 71, July
AUD- 61 , 84
FAR- -- 75 🙂

[Anonymous]

thank you @goodluck2everyone, your explanation is very helpful.

for anyone who still confused about this question. I have find more details explanation on website in following link.

https://www.wiley.com/college/kieso/trans/ch10.pdf

Good luck to everyone!

[Luka0712]

The amount of capitalized interst is the lower of:
a. Avoidable interest = 500,000 x 12% + 125,000 x 10% = 60,000 + 1,2500 = 72,500
Weighted average amount of accumulated expenditure
= 200,000 x 12/12 + 600,000 x 8/12 + 300,000 x 1/12
= 200,000 + 400,000 + 25,000 = 625,000

b. Actual interest cost incurred = 500,000 x 12% + 800,000 x 10% = 60,000 + 80,000 = 140,000

Capitalized interest = 72,500 (72,500 < 140,000)

[Author]

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