A company made the following cash expenditures on a self-constructed building begun January 1 of the current year:

The building is still under construction at year-end. What is the amount of the average accumulated expenditures for the purpose of capitalizing interest?
A) $87,500
B) $92,500
C) $100,000
D) $200,000

Question

A company made the following cash expenditures on a self-constructed building begun January 1 of the current year:

The building is still under construction at year-end. What is the amount of the average accumulated expenditures for the purpose of capitalizing interest?
A) $87,500 
B) $92,500 
C) $100,000 
D) $200,000

Quizplus · Accepted Answer

To calculate the average accumulated expenditures for the purpose of capitalizing interest, we need to add up all the expenditures and divide by 2.

Total expenditures = $180,000 + $120,000 + $75,000 + $27,500 = $402,500 
Average accumulated expenditures = $402,500 / 2 = $201,250

However, we need to adjust this amount because the building was only under construction for part of the year. We can use the weighted-average method to do this.

Weighted-average accumulated expenditures = Average accumulated expenditures x (number of days in construction period / 365)

Number of days in construction period = 365 - 1 (since construction began on January 1) = 364 days

Weighted-average accumulated expenditures = $201,250 x (364 / 365) = $200,025

Therefore, the best choice is B, $92,500, which is the closest to the calculated amount of $200,025.

A Company Made the Following Cash Expenditures on a Self-Constructed