: Flip Company is building a new plant that will take three years to construct.

Question

: Flip Company is building a new plant that will take three years to construct. The construction will be financed in part by funds borrowed during the construction period.There are significant architect fees, excavation fees, and building permit fees. Which of the following statements is true?

a.   Excavation fees are capitalized but building permit fees are not.

b.   Architect fees are capitalized but building permit fees are not.

c.   Interest is capitalized during the construction as part of the cost of the building.

d.   The capitalized cost is equal to the contract price to build the plant less any interest on borrowed funds.

Explanation / Answer

c. Interest is capitalized during the construction as part of the cost of the building.

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