Assume the Following Long-Term Debt Structure for Parton Stores

question 5

Multiple Choice

Assume the following long-term debt structure for Parton Stores:
Construction Loan at 5% on Building Under Construction .........$2,000,000
Other Borrowings at 6% Average Rate .........................7,200,000
Total Long-Term Debt ....................................$9,200,000
The account Building Under Construction has an average balance during the year of $6,000,000.Parton Stores bases the amount of interest capitalized on the new construction-related borrowing, $2,000,000, and enough of the other borrowing to bring the total to $6,000,000.
How much does Parton Stores capitalize interest on the new construction?

• A)$240,000
• B)$300,000
• C)$320,000
• D)$340,000
• E)$360,000

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Definitions:

Significant Influence

A level of control exerted by an investor over an investee, characterized by the power to participate in financial and operating policy decisions without having full control or majority ownership.

Book Value

The net value of a company's assets minus its liabilities, reported on the balance sheet. It represents the shareholders' equity in the company.

Copyright

A form of legal protection given to creators of original works, granting them exclusive rights to use, distribute, and control the use of their work.

Fair Value

A calculated guess at the rate an asset or liability could be traded between aware, agreeable entities in a transaction lacking any close personal ties.