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

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.