Share
Explore BrainMass

Compare the Cost of Buildings; Explain the Discrepancy

The following two companies constructed a building with a total construction cost of $20 million (costs were incurred evenly over the course of a year). Each company chose to finance the construction differently.

Company A Company B

Weighted average accumulated expenditures 10,000,000 10,000,000

Total construction cost of building
(excluding interest) 20,000,000 20,000,000

Company financing (outstanding at year end)
Construction loan (14%) 20,000,000 0
Common stock 0 20,000,000

Total construction loan interest 1,400,000 0

Instructions

a. Calculate the total cost for each building
b. Explain the discrepancy in the way cost was determined
c. Propose a change in the accounting standards that could eliminate this discrepancy.

Solution Preview

Please see the attached file for the complete tutorial.

Instructions

a.       Calculate the total cost for each building Company A Company B
Total cost ...

Solution Summary

The solution compares the cost of buildings and explains the discrepancy.

$2.19