Question

On January 1, 2017, Sonic Corp. begins construction on a new warehouse. The construction project qualifies as a self-constructed asset. Sonic had the following expenditures on the project during 2017:

January 1, 2017
$100,000
April 1, 2017
100,000
November 1, 2017
150,000

What are the average accumulated expenditures used to calculate capitalized interest on the project in 2017?
1) $200,000
2) $350,000
3) $175,000
4) $116,667

Answer 1

The average accumulated expenditure used to calculate capitalized interest on the warehouse construction project by Sonic Corp. in 2017 is $200,000. This figure is obtained by calculating the weighted average based on the time each expenditure was outstanding during the year.

Step-by-step explanation:

The question asks for the calculation of average accumulated expenditures for the purpose of determining the amount of capitalized interest for a construction project. To calculate this, we take the sum of the expenditures weighted by the amount of time that each expenditure was outstanding during the accounting period. Here's the breakdown of the calculation:

• First expenditure: $100,000 for the entire year (1/1 to 12/31).
• Second expenditure: $100,000 for nine months (4/1 to 12/31).
• Third expenditure: $150,000 for two months (11/1 to 12/31).

Therefore, the average accumulated expenditures would be calculated as follows:

• $100,000 x 12/12 months = $100,000
• $100,000 x 9/12 months = $75,000
• $150,000 x 2/12 months = $25,000

Adding these up gives us:

$100,000 + $75,000 + $25,000 = $200,000

Therefore, the correct answer is (1) $200,000, which is the average accumulated expenditures for 2017 used to calculate the capitalized interest.