Question

The City of Oak Park constructed a new storage facility using the city's own public works employees. Construction costs were incurred in the amount of 900,000, plus 25,000 in interest on short-term notes used to finance construction. What amount should be capitalized in the government-wide statements?

1) 900,000
2) 925,000
3) 875,000
4) 0

Answer 1

The amount that should be capitalized in the government-wide statements is $925,000. Construction costs and interest on short-term notes should be capitalized to allocate them over the useful life of the facility.

The answer is option ⇒b

Step-by-step explanation:

The amount that should be capitalized in the government-wide statements is $925,000.

In this case, the construction costs of $900,000 and the interest on short-term notes of $25,000 should be capitalized. Capitalizing means recording these costs as an asset rather than expensing them immediately. This ensures that the costs are allocated over the useful life of the storage facility.

The answer is option ⇒b