Question

On January 1, 2021, Kendall Inc. began construction of an automated cattle feeder system. The system was finished and ready for use on September 30, 2022. Expenditures on the project were as follows:
January 1, 2021 $ 200,000
September 1, 2021 $ 300,000
December 31, 2021 $300,000
March 31, 2022 $ 300,000
September 30,2022 $200,000

Kendall borrowed $750,000 on a construction loan at 12% interest on January 1, 2021. This loan was outstanding throughout the construction period. The company had $4,500,000 in 9% bonds payable outstanding in 2021 and 2022. Average accumulated expenditures for 2021 was:____

Answer 1

Answer:

$392,500

Explanation:

January 1,2021  200,000*12/12        $200,000

September 1,2021 $300,00*4/12     $100,000

December 31,2021 $300,000*1/12   $25,000

Borrowing costs to be capitalized $750,000*12%*9/12 $67,500

Average Accumulated expenditure for 2021  $392,500

Please note that borrowing costs incurred on construction loan will also be capitalized as it is specific construction loan..

All the expenditures have been averaged out from the date they are incurred.