For a storage facility constructed with city personnel and financing with short-term notes, what amount should be capitalized in government-wide statements?

• A. $900,000
• B. $925,000
• C. $25,000
• D. $0

Answer: (A)

Capital assets in government-wide statements are recorded at cost, including the direct costs to bring the asset to use. When the work is done by city personnel, their wages and benefits attributable to the project are part of that cost, along with materials and other direct costs. Financing costs like interest on debt used to finance construction may be capitalized only if the debt is specifically issued for the asset during its construction and meets capitalization criteria. In this case, the facility was built with city personnel and financed with short‑term notes, so the direct construction costs amount to $900,000 should be capitalized. The financing costs do not add to the asset’s cost here, so the amount capitalized is $900,000.