Question

On January 1, 2018, Dreamworld Co. began construction of a new warehouse. The building was finished and ready for use on September 30, 2019. Expenditures on the project were as follows:

January 1, 2018 $334,000
September 1, 2018 $498,000
December 31, 2018 $498,000
March 31, 2019 $498,000
September 30, 2019 $334,000


Dreamworld had $6,600,000 in 12% bonds outstanding through both years. Dreamworld's average accumulated expenditures for 2018 was:________

a. 500,000
b. 668,000
c. 583,500
d. 334,000

Answer 1

$500,000

Step-by-step explanation:

weighted accumulated expenditures:

January 1, 2018 = $334,000 x 12/12 = $334,000

September 1, 2018 = $498,000 x 4/12 = $166,000

December 31, 2018 = $498,000 x 0/12 = $0

total weighted accumulated expenditures = $500,000

Weighted accumulated expenditures are used to calculate capitalized interests, which would equal = $500,000 x 12% = $60,000.