In computing capitalized interest, average accumulated expenditures:
A)Is the arithmetic mean of all construction expenditures.
B)Is determined by time-weighting individual expenditures made during the asset construction period.
C)Is multiplied by the company's most recent financing rates.
D)All of these are correct.

Question

Quizplus · Accepted Answer

Average accumulated expenditures are determined by time-weighting individual expenditures made during the asset construction period. This means that expenditures made earlier in the construction period are given less weight than expenditures made later in the period. This method results in a more accurate estimation of the actual amount of interest that should be capitalized. The other options, such as taking the arithmetic mean of all construction expenditures or multiplying accumulated expenditures by financing rates, are not the correct ways to calculate capitalized interest.

In Computing Capitalized Interest, Average Accumulated Expenditures