Question

On May 1, 2017, Goodman Company began construction of a building. Expenditures of $600,000 were incurred monthly for 5 months beginning on May 1. The building was completed and ready for occupancy on September 1, 2017. For the purpose of determining the amount of interest cost to be capitalized, the weighted-average accumulated expenditures on the building during 2017 were a. $500,000. b. $600,000. c. $2,400,000 d. $3,000,000.I

Answer 1

Option A,$500,000 is correct as shown below.

Step-by-step explanation:

In order to compute the accumulated expenditures on the building during 2017,the actual amount of expenditure incurred of $600,000 is weighted with with relevant months.

Since it took 5 months to complete the construction,applicable months are those months before it as shown thus;

4 months $600,000*4/12=$200,000

3 months $600,000*3/12=$150,000

2 months $600,000*2/12=$100,000

1 month $600,000*1/12=$50,000

The sum of weights=$200,000+$150,000+$100,000+$50,000=$500,000

Hence the correct option is $500,000,option A

Answer 2

$500,000

Step-by-step explanation:

Goodman Company

$600,000 × 4/12) + ($600,000 × 3/12) + ($600,000 × 2/12) + ($600,000 × 1/12)

=$200,000+$150,000+$100,000+$50,000

= $500,000

Therefore For the purpose of determining the amount of interest cost to be capitalized, the weighted-average accumulated expenditures on the building during 2017 were $500,000.