Jarvis, Inc

Multiple Choice

Jarvis, Inc. manufactures cruise ships for sale. Each ship costs approximately €25,000,000 to build and takes 3 years to fully construct. During the time it takes to construct one cruise ship, Jarvis incurs €2,400,000 in interest cost related to the construction. The interest cost is incurred evenly throughout the construction period. During the first year of construction, Jarvis builds a shell that can be customized for any purchaser according to specifications; construction during the final 2 years is all based on client specification. The International Accounting Standards Board requires that Jarvis account for this interest cost as

A) €2,400,000 is recorded as interest expense as incurred.
B) €2,400,000 is capitalized to the cruise ship.
C) €800,000 incurred in 1^st year is expensed as incurred; the remaining amount is capitalized to the cruise ship.
D) €800,000 is capitalized to the cruise ship; the remaining amount is expensed as incurred.