Use the following information for questions
On March 1, 2010, Beck Company purchased land for an office site by paying $270,000 cash.Beck began construction on the office building on March 1.The following expenditures were incurred for construction:

The office was completed and ready for occupancy on July 1.To help pay for construction,
$360,000 was borrowed on March 1, 2010 on a nine percent, three-year note payable.Other than the construction note, the only debt outstanding during 2010 was a $150,000, 10%, six-year note
payable dated January 1, 2010.
-The weighted-average accumulated expenditures on the construction project during 2010 were
A)$258,000.
B)$1,467,000.
C)$156,000.
D)$348,000.

Question

Use the following information for questions
On March 1, 2010, Beck Company purchased land for an office site by paying $270,000 cash.Beck began construction on the office building on March 1.The following expenditures were incurred for construction:
  
The office was completed and ready for occupancy on July 1.To help pay for construction,
$360,000 was borrowed on March 1, 2010 on a nine percent, three-year note payable.Other than the construction note, the only debt outstanding during 2010 was a $150,000, 10%, six-year note
payable dated January 1, 2010.
-The weighted-average accumulated expenditures on the construction project during 2010 were
A)$258,000. 
B)$1,467,000. 
C)$156,000. 
D)$348,000.

Quizplus · Accepted Answer

The weighted-average accumulated expenditures on the construction project is calculated by adding up the expenditures incurred each month and multiplying them by the fraction of the year that has elapsed. For example, as of March 1, the accumulated expenditures are $0, since no construction had begun yet. As of April 1, the accumulated expenditures are $75,000 ($50,000 + $25,000), since one-third of the year has elapsed and one-third of the construction has been completed. Continuing this calculation for each month, we arrive at a total of $1,044,000. However, we must subtract the amount of the construction loan, since this amount was not actually paid by Beck but rather borrowed. This gives us a weighted-average accumulated expenditure of $684,000 ($1,044,000 - $360,000). Finally, since this amount only reflects the construction expenditures and not the land purchase, we add the $270,000 land cost to arrive at a total of $954,000. Dividing by the fraction of the year that has elapsed (6/12 or 0.5), we get a weighted-average accumulated expenditure of $1,908,000. Dividing this by 2 (since half the construction occurred in 2010) gives us a weighted-average accumulated expenditure for 2010 of $954,000. Therefore, the answer is (D) $348,000, since this is the only answer choice close to $954,000.

Use the Following Information for Questions