Question

Messersmith Company is constructing a building. Construction begain in 2017 and the building was completed 12/31/17. Messersmith made payments to the construction company of $3,000,000 on 7/1, $6,300,000 on 9/1, and $6,000,000 on 12/31. Weighted average accumulated expenditures were

Answer 1

The weighted average accumulated expenditures for Messersmith Company is $3,600,000.

So, the correct answer is option 1) $3,600,000.

Step-by-step explanation:

The weighted-average accumulated expenditures are calculated by taking into account the length of time the funds are used during the construction period. For investments made during the construction process, the time-weighted value of those expenditures is determined by multiplying the amount of payment by the fraction of the year that the money was used. In this case, Messersmith Company made three payments on different dates throughout the year 2020 for the construction of the building.

• On 7/1, a payment of $3,000,000 was made, so this amount was used for 6 months (July to December), which is ½ of the year.
• On 9/1, a payment of $6,300,000 was made, used for 4 months (September to December), which is ⅓ of the year.
• On 12/31, a payment of $6,000,000 was made, and since it was made on the last day of the year, it was not used during the construction period in 2020, therefore it doesn't contribute to the weighted average.

To calculate the weighted-average accumulated expenditures, we combine these time-weighted values:

• $3,000,000 x ½ = $1,500,000
• $6,300,000 x ⅓ = $2,100,000
• $6,000,000 x 0 = $0 (since this payment did not contribute to the construction in 2020)

The sum of these time-weighted values provides us with the weighted-average accumulated expenditures for the year 2020:

$1,500,000 + $2,100,000 + $0 = $3,600,000

Therefore, the correct answer for the weighted-average accumulated expenditures for Messersmith Company's construction in 2020 is $3,600,000.

So, the correct answer is option 1) $3,600,000.

Complete question:

Messersmith Company is constructing a building. Construction began January 1 , 2020 and the building was completed 12/31/20. Messersmith made payments to the construction company of $3,000,000 on 7/1,$6,300,000 on 9/1, and $6,000,000 on 12/31. Weighted-average accumulated expenditures were

1. $3,600,000
2. $3,075,000
3. $9,300,000
4. $15,300,000