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1) Identify the correct statement regarding the treatment of interest in measuring long-lived assets.

Multiple choice question.

- If assets are being constructed for others, interest is never capitalized.

- Interest capitalization increases interest expense in the current accounting period but decreases depreciation expense in subsequent periods.

- Avoidable interest is never capitalized.

- Interest paid to lenders during the construction period is considered to be a cost necessary to prepare the asset for its intended use.

2) Identify the correct statement.

Multiple choice question.

- For tax purposes, it is better to capitalize interest than to deduct it immediately.

- For financial reporting purposes, the manner in which costs are allocated is guided by which asset generated the cost.

- U.S. tax rules don't require cost allocations between land and buildings.

- U.S. tax rules differ from GAAP rules and do not require avoidable interest to be capitalized for tax purposes.

3) Renaldo Corporation purchased a piece of equipment for $21,000. The asset has a useful life of 5 years and a $1,000 salvage value. The asset will be used to produce a total of 10,000 units. Production for the current year was 3,500 units. Depreciation using the straight-line method for the current year is

Multiple choice question.

- $4,000.

- $4,200.

- $8,000.

- $2,000.

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