Question

X Company is constructing a building. Construction began in 2018 and the building was completed 31 December, 2018. X made payments to the construction company of $1,000,000 on 1 July, $2,100,000 on 1 September, and $2,000,000 on 31 December. Average accumulated expenditures were ------.

Select one:

a. $5,100,000.

b. $1,200,000.

c. $3,100,000.

d. $1,025,000.

The treasury stocks should be deducted from the stockholder’s equity.

Select one:

a. True.

b. False.

Answer 1

As the construction period is began in 2018 and the Building was completed 31 December,2018. The expenditure incurred by X in construction of building at periodical intervals is to be taken as weighted average with corresponding period to completion of construction.

DATE	EXPENDITURE ($)	PERIOD TILL COMPLETION (months)	CALCULAION	AMOUNT ($)
1 July	1000000	6	1000000*6/12 =	500000
1 September	2100000	4	2100000*4/12 =	700000
31 December	200000	0	200000*0/12 =	0
TOTAL				1200000

Based on the above calculation Average Accumulated Expenditure is option b. that is $1200000.

Treasury stock is a contra equity account recorded in the shareholder's equity section of the balance sheet. Because treasury stock represents the number of shares repurchased from the open market, it reduces shareholder's equity by the amount paid for the stock.

The above statement shows that the treasury stocks should be deducted from the stockholder’s equity.

therefore this statement is a. TRUE