Question

On January 1, 2018, Dreamworld Co. began construction of a new warehouse. The building was finished and ready for use on September 30, 2019. Expenditures on the project were as follows:

January 1, 2018 $334,000
September 1, 2018 $498,000
December 31, 2018 $498,000
March 31, 2019 $498,000
September 30, 2019 $334,000


Dreamworld had $6,600,000 in 12% bonds outstanding through both years. Dreamworld's average accumulated expenditures for 2018 was:________

a. 500,000
b. 668,000
c. 583,500
d. 334,000

Answer 1

Answer:

Dreamworld's average accumulated expenditures for 2018 was:________

a. 500,000

Explanation:

a) Data and Calculations:               Weights:  

January 1, 2018           $334,000      12/12          $334,000

September 1, 2018     $498,000        4/12             166,000

December 31, 2018   $498,000        0/12                0

March 31, 2019          $498,000

September 30, 2019 $334,000

Average accumulated expenditure for 2018   $500,000

b) To calculate the average accumulated expenditures for 2018, weights relative to the fraction representing the capitalization period in terms of years is applied to the actual amount of expenditure as above.