Question

Bramble Inc is a book distributor that had been operating in its original facility since 1995 . The increase in certification programs and continuing education requirements in several professions has contributed to an annual growth rate of 15% for Bramble since 2020 . Bramble's original facility became obsolete by early 2025 because of the increased sales volume and the fact that Bramble now carries DVDs in addition to books. On June 1, 2025, Bramble contracted with Black Construction to have a new building constructed for $5,120,000 on land owned by Bramble. The payments made by Bramble to Black Construction are shown in the schedule below. Date Amount July 30, 2025 $1,152,000 January 30, 2026 1,920,000 May 30, 2026 2,048,000 Total payments $5,120,000 Construction was completed and the building was ready for occupancy on May 27.2026. Bramble had no new borrowings directly Jssociated with the rew building but had the following debt outstanding at May 31 , 2026, the eid of its fiscal year: 10%, 5-year note payable of $2,560,000, dated April 1. 2022, with interest payable annually on April 1. 12%,10-year bond issue of $3,840,000 sold at par on June 30,2018 , with interest payable annually on June 30 . The new building qualifies for interest capitalization. The effect of capitalizing the interest on the new building, compared with the effect of expensing the interest, is material. (a) Compute the weighted aiverage accurnulated expenditures on Arambie's new building during the capitalization period, Weighted-average accumulated expenditures ___ $

Answer 1

To compute the weighted average accumulated expenditures on Bramble's new building during the capitalization period, we need to consider the payments made to Black Construction and the timing of these payments.

Using the information provided, we can calculate the weighted average accumulated expenditures as follows:

1. Identify the payments made during the capitalization period:
- July 30, 2025: $1,152,000
- January 30, 2026: $1,920,000
- May 30, 2026: $2,048,000

2. Determine the time-weighted factor for each payment:
The capitalization period starts from June 1, 2025, to May 27, 2026, which is a total of 361 days.

- July 30, 2025: 63 days / 361 days = 0.1745
- January 30, 2026: 244 days / 361 days = 0.6765
- May 30, 2026: 360 days / 361 days = 0.9972

3. Calculate the weighted average accumulated expenditures:
- July 30, 2025: $1,152,000 * 0.1745 = $200,724
- January 30, 2026: $1,920,000 * 0.6765 = $1,299,840
- May 30, 2026: $2,048,000 * 0.9972 = $2,042,496

4. Sum up the weighted amounts:
$200,724 + $1,299,840 + $2,042,496 = $3,542,060

Therefore, the weighted average accumulated expenditures on Bramble's new building during the capitalization period amount to $3,542,060.