Problem 23-9

Hackleman Company is constructing a building. Construction began in 2008 and the

building was completed 12/31/08. Hackleman made payments to the construction
company of $1,500,000 on 7/1, $3,300,000 on 9/1, and $3,000,000 on 12/31. Average
accumulated expenditures were
a. $1,575,000.
b. $1,850,000.
c. $4,800,000.
d. $7,800,000.
Solving for average accumulated expenditure requires the payment value to be multiplied to the
number of remaining months before reaching the accounting period over 12. So, for the
1,500,000 payment, since it was done on 7/1, there would be 6 months (from 7/1 – 12/31); for
the 3,300,000 payment, it was done on 9/1 thus the remaining would be 4 months. The payment
made on 12/31 has no months left so the multiplier is 0. Adding the 2 values:
(1,500,000*6/12)+(3,300,000*4/12) gives the value of 1,850,000.