Average accumulated expenditures:
A) Is an approximation of the average debt a firm would have outstanding if it financed all construction through debt.
B) Is computed as a simple average if all construction expenditures are made at the end of the period.
C) Are irrelevant if the company's total outstanding debt is less than total costs of construction.
D) All of these answer choices are true statements.

Question

Quizplus · Accepted Answer

Average accumulated expenditures approximate the average debt a firm would have if it financed all construction through debt, reflecting the interest costs a company would incur. Choices B and C are incorrect because average accumulated expenditures are not computed as a simple average based solely on end-of-period expenditures, and they remain relevant for interest cost capitalization purposes regardless of the company's total outstanding debt relative to construction costs.

Average Accumulated Expenditures