Question

# On December 31, 2012, Cia Company borrowed \$400,000 from First Bank with interest payable annually at...

On December 31, 2012, Cia Company borrowed \$400,000 from First Bank with interest payable annually at 10% maturing on December 31, 2015 in order to provide funds for the construction of a building to use as its corporate headquarters. On January 1, 2013, Cia Company started the construction. The project was completed and ready for occupancy on December 31, 2013. Cia incurred the following expenditures related to construction during 2013: January 1 \$400,000 April 1 350,000 October 31 900,000 December 31 250,000 \$1,900,000

Aside from the loan described above, Cia also had a \$1,000,000 5-year note payable issued December 31, 2012 that bears interest annually at 8% and \$1,200,000 of bonds payable issued on December 31, 2010 due in 10 years that bear interest annually at 9%.

1. Compute weighted average accumulated expenditures for the construction project.

Weighted-average accumulated expenditure is the product of expenditures incurred on a qualifying asset and a fraction representing the capitalization period in terms of years.

Weighted-average accumulated expenditures = expenditure incurred * months in capitalization period of the relevant year/12

Following schedule calculates the weighted-average accumulated expenditures:

Payment Date Expenditures
(A)
Capitalization Period
(B)
Weight
(C=B/12)
Weighted Expenditures
(A×C)
01-Jan-13 400,000 12 months 1.00 400,000
01-April-13 350,000 9 months 0.75 262,500
31-Oct-13 900,000 2 months 0.167 150,300
31-Dec-13 250,000 0 month 0 0
812,800

weighted average accumulated expenditures for the construction project =\$812,800

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