- CFA Exams
- CFA Level I Exam
- Topic 4. Financial Statement Analysis
- Learning Module 2. Analyzing Income Statements
- Subject 3. Expense Recognition - Long-Lived Assets
CFA Practice Question
Ashley Corporation constructed an office building for its own use. During 2015, the average accumulated expenditure for construction was $4,000,000. At the end of 2010, Ashley had borrowed $1,000,000 specifically for the construction costs. The interest on the construction loan was 11%. The only other debt was $10,000,000 debentures (outstanding all of 2015), with an interest rate of 8%. How much is the total interest to be paid in 2015?
B. $800,000
C. $910,000
A. $110,000
B. $800,000
C. $910,000
Correct Answer: C
Total interest = ($10,000,000 x .08) + ($1,000,000 x .11) = $800,000 + $110,000 = $910,000
User Contributed Comments 10
| User | Comment |
|---|---|
| uberstyle | note total interest, not interest attributable to construction |
| kutta2102 | Darn nearly tricked me! |
| viannie | it's how much we need to pay for interest ... not how much interests is attributed to the construction ;( |
| rfvo | has nothing to do with capitalization |
| Paulvw | There I was thinking of uncapitalized interest... <:( |
| arudkov | TOTAL(( they got me. |
| investoprenuer | What's this question trying to teach? |
| safash | teaching us to be alert |
| johntan1979 | A little off topic, I would say, this question. Perhaps something more beneficial and related to the current topic would be nice. |
| robertdole | The questions are formulaic. Identifying the subject (interest) and trigger (paid in 2011) makes breaking them down more palpable. |