CPA Exam Simulation & CPA Questions. Interest Capitalization. INtermediate Accounting.

In this video I go over CPA exam questions that cover interest capitalization. CPA exam questions give you four options to choose from. It is important to practice CPA exam questions before sitting for the CPA exam.
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What Is Capitalized Interest?
Capitalized interest is the cost of borrowing to acquire or construct a long-term asset. Unlike an interest expense incurred for any other purpose, capitalized interest is not expensed immediately on the income statement of a company's financial statements. Instead, firms capitalize it, meaning the interest paid increases the cost basis of the related long-term asset on the balance sheet. Capitalized interest shows up in installments on a company's income statement through periodic depreciation expense recorded on the associated long-term asset over its useful life.

[@nourhanmostafa4543]

Please anyone explain why we did not subtract the cost of land from March expenditures?

[@satriani005]

1st problem why did you divide the amount specifically by 2 not different number ? Please thanks

[@angelawoodard2]

same issue

[@Saadbaa]

Why land cost not deducted from March expenditures incurred

[@isaacmartinez-bs8se]

yea.. not sure pls explain

[@nourhanmostafa4543]

This confused me as well! I subtracted it because land is not depreciable and costs added to the building will be depreciated over the useful life. Also, if we capitalize the land when it was bought that means we accounted for that money twice?!

[@arnabsaha487]

Shouldn’t we subtract the march 1, 2020 interest expense from 259,860 in 3rd question?

[@Lee-qu4ce]

Why divide the 2.4 mil by 2? The project was completed during that year.

[@andvari1056]

You divide by 2 to get the average if it’s spent evenly throughout the year.

[@carlybfilmclub5851]

@@andvari1056 yes but how does that work. I don't understand why that is done.

[@jonathansmith4183]

@@carlybfilmclub5851I know this is late but maybe it will help. Saying it was spent evenly throughout the year could imply this situation: $600000 spent on 1/1 $600000 spent on 4/1 $600000 spent on 7/1 $600000 spent on 10/1 $600000 sent on 12/31 To pro rate it: $600000 x 12/12 $600000 x 9/12 $600000 x 6/12 $600000 x 3/12 $600000 x 0/12 If you add those up you get 1.2 million. Now that you know that, if a question ever says the money was spent EVENLY throughout the year, just divide by 2 and you will get you average expenditures throughout the year.