Mattox 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.

Question

Quizplus · Accepted Answer

Interest is capitalized during the construction period as part of the cost of the building. Excavation fees and architect fees are also typically capitalized because they are directly related to the construction of the building. Building permit fees, on the other hand, are generally not capitalized because they are considered administrative costs rather than direct costs of construction. It is also important to note that the capitalized cost is equal to the contract price to build the plant plus any interest on borrowed funds, not less.

Mattox Company Is Building a New Plant That Will Take