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    Compare the Cost of Buildings; Explain the Discrepancy

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    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


    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.

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    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.