Question

Stellar Company is constructing a building. Construction began on February 1 and was completed on December 31. Expenditures were $2,040,000 on March 1, $1,320,000 on June 1, and $3,031,130 on December 31. Compute Stellar’s weighted-average accumulated expenditures for interest capitalization purposes.

Answer 1

$2,470,000

Step-by-step explanation:

Weight of expenditure from March 1 to December 31 (i.e. for 10 months) = 10/12

Weight of expenditure from June 1 to December 31 (i.e. for 7 months) = 7/12

Weight of expenditure on December 31 (i.e. 0 month) = 0

Therefore, we have:

Weighted-average accumulated expenditures = ($2,040,000 × (10/12)) + ($1,320,000 × (7/12)) + ($3,031,130 × 0) = $1,700,000 + $770,000.00 + 0 = $2,470,000

Answer 2

$2,640,000

Step-by-step explanation:

Feb 1 $2,040,000*10/12=1,870,000

June 1 $1,320,000*7/12= 770,000

Dec 31 $3,031,130*0=

Total expenditure to be capitalized $2,640,000