Chilton Peripherals manufactures printers, scanners, and other computer peripheral equipment. In the past, the company purchased equipment used in manufacturing from an outside vendor. In March 2011, Chilton decided to design and build equipment to replace some obsolete equipment. A section of the manufacturing plant was set aside to develop and produce the equipment. Additional personnel were hired for the project. The equipment was completed and ready for use in September.

1. What assets qualify for interest capitalization? What assets do not qualify for interest capitalization?

2. Over what period should interest be capitalized?

3. Explain average accumulated expenditures.

4. Explain the two methods that could be used to determine the appropriate interest rate to be used in capitalizing interest.

5. Describe the three steps used to determine the amount of interest capitalized during a reporting period.