Yamashita was constructing a building throughout Year 1 to be completed in the summer of Year 2. The building will be used to expand the current furniture, production-facility operations. The total cost of the building is estimated to be $3,000,000. During Year 1, construction costs were incurred evenly throughout the year and totaled $2,000,000. As of January 1, Year 1 and throughout all of Year 1, Yamashita had borrowed $700,000 at a 5% interest rate specifically to finance the construction of the new building.

Yamashita's other interest-bearing debt, outstanding throughout Year One, includes $1,000,000 of 10% debentures and $500,000 of 7% debentures.

Note: All interest amounts are per annum.

Using the facts above, determine whether each statement is true or false by selecting the appropriate response from the menu next to each statement.

1 The total amount of additional interest that Yamashita should capitalize on its balance sheet for Year 1 is $62,000.

2 The $700,000 that was borrowed to finance the construction was temporarily invested by Yamashita until the funds were actually needed in March, Year 1. The $5,000 of interest income earned on those funds may be offset against the interest expense to be capitalized.

3 Interest capitalization is an example of the application of the matching principle.

4 The only two requirements regarding when interest capitalization should begin are:

Expenditures for the asset have been made and,

Interest cost is being incurred.

5 Since Yamashita is developing land to house the building, the expenditures to acquire the land qualify for interest capitalization.