Question

Indigo Company is constructing a building. Construction began on February 1 and was completed on December 31. Expenditures were $2,028,000 on March 1, $1,308,000 on June 1, and $3,003,740 on December 31. Compute Indigo’s weighted-average accumulated expenditures for interest capitalization purposes.

Answer 1

Answer:

$2,453,000

Explanation:

On March 1,

weighted-average accumulated expenditures:

= Expenditure × Capitalization period

= $2,028,000 × (10 months ÷ 12 months)

= $2,028,000 × 0.83

= $1,690,000

On June 1,

weighted-average accumulated expenditures:

= Expenditure × Capitalization period

= $1,308,000 × (7 months ÷ 12 months)

= $1,308,000 × 0.58

= $763,000

On December 31,

weighted-average accumulated expenditures:

= Expenditure × Capitalization period

= $3,003,740 × 0

= $0

Therefore,

Indigo’s weighted-average accumulated expenditures:

= $1,690,000 + $763,000 + $0

= $2,453,000