Solara Company Entered into a Contract with Hammer Construction Company

question 34

Multiple Choice

Solara Company entered into a contract with Hammer Construction Company to construct a building.Construction began in 2014 and was completed in 2015.As of January 1,2015,Solara had made total progress payments to Hammer of $50,000.In addition,interest capitalized on the building during 2014 was $2,500.Solara made additional payments on June 30,2015,and December 31,2015.Solara had issued $80,000 of 9% bonds to finance part of the construction.The average interest on Solara's additional debt was 11% for 2015. How much interest should be capitalized by Solara for 2015?

• A) $6,750
• B) $6,975
• C) $13,500
• D) $13,725

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Definitions:

Audit

A systematic review or assessment of financial accounts, records, or transactions to ensure accuracy, compliance with standards, and to verify reports.

Negligent

Failing to take reasonable care to avoid causing harm or injury to others, typically resulting in legal liability.

Reasonably Competent Accountant

A professional who possesses the necessary skills and knowledge expected of a qualified accountant in performing their duties.

Circumstances

The specific conditions or facts affecting a situation, event, or action which can influence the outcome.