Question

On January 1, 2021, Dreamworld Co. began construction of a new warehouse. The building was finished and ready for use on September 30, 2022. Expenditures on the project were as follows: January 1, 2021 $ 316,000 September 1, 2021 $ 462,000 December 31, 2021 $ 462,000 March 31, 2022 $ 462,000 September 30, 2022 $ 316,000 Dreamworld had $5,400,000 in 14% bonds outstanding through both years. What was the final cost of Dreamworld's warehouse?

Answer 1

The final cost of Dreamworld's warehouse is $1554000

Step-by-step explanation:

Expenditure Time period Average expenditure

January 1,2021 300000 12/12 300000

September 1,2021 450000 4/12 150000

December 31,2021 450000 0/12 0

Total 1200000 450000

Interest capitalized for 2021 54000 = 450000 into 12%

Total expenditure till Jan 1, 2022 1254000 = 1200000 + 54000

Expenditure Time period Average expenditure

Total expenditure

till Jan 1,2022 1254000 9/9 1254000

March 31,2022 450000 6/9 300000

September 30,2022 300000 0/9 0

Total 1554000

Therefore, the Option B $1,554,000 is correct final cost of Dreamworld's warehouse.