Question

Check my work On January 1, 2021, the company obtained a $3 million loan with a 10% interest rate. The building was completed on September 30, 2022. Expenditures on the project were as follows: points January 1, 2021 March 1, 2021 June 30, 2021 October 1, 2021 January 31, 2022 April 30, 2022 August 31, 2022 $1,040,000 810,000 450,000 700,000 1,125,000 1,440,000 2,610,000 eBook Print On January 1, 2021, the company obtained a $3 million construction loan with a 10% interest rate. Assume the $3 million loan is not specifically tied to construction of the building. The loan was outstanding all of 2021 and 2022. The company's other interest-bearing debt included two long-term notes of $5,900,000 and $7,900,000 with interest rates of 7% and 9%, respectively. Both notes were outstanding during all of 2021 and 2022. Interest is paid annually on all debt. The company's fiscal year-end is December 31. References Required: 1. Calculate the amount of interest that Mason should capitalize in 2021 and 2022 using the weighted average method 2. What is the total cost of the building? 3. Calculate the amount of interest expense that will appear in the 2021 and 2022 income statements. Complete this question by entering your answers in the tabs below. Req 1 and 3 Reg 2 Calculate the amount of interest that Mason should capitalize in 2021 and 2022 using the weighted average method and interest expense that will appear in the 2021 and 2022 income statements. ("Round "Weighted average rate of all debt" to 2 decimal places but do not round other intermediate calculations. Round your answers to the nearest whole dollar.) 2021 2022 Interest capitalized Interest expense Req 1 and 3 Req2 >

Answer 1

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	2021	2022
Interest Capitalized	$              1,79,352	$   3,35,131
Interest Expense	$            12,44,648	$ 10,88,869
Total cost of building	$            86,89,483
Workings:
Weighted Average rate of all debt:-
	$            30,00,000	X	10%	=	$          3,00,000
	$            59,00,000	X	7%	=	$          4,13,000
	$            79,00,000	X	9%	=	$          7,11,000
	$        1,68,00,000				$       14,24,000
	Weighted Average rate of all debt =				8.48%
	($1424000/ $16800000)
Expenditure for 2021
Jan 1,2021	$            10,40,000	X	12/12	=	$       10,40,000
March 1, 2021	$              8,10,000	X	10/12	=	$          6,75,000
June 30, 2021	$              4,50,000	X	6/12	=	$          2,25,000
October 1, 2021	$              7,00,000	X	3/12	=	$          1,75,000
	$            30,00,000				$       21,15,000
Interest Capitalized in 2021
	$            21,15,000	X	8.48%	=	$          1,79,352
Expenditure for 2022
Jan 1, 2022 ($3000000 + $179352)	$            31,79,352	X	9/9	=	$       31,79,352
Jan 31, 2022	$            11,25,000	X	8/9	=	$       10,00,000
April 30, 2022	$            14,40,000	X	5/9	=	$          8,00,000
August 31. 2022	$            26,10,000	X	1/9	=	$          2,90,000
	$            83,54,352				$       52,69,352
Interest Capitalized in 2022
$                      52,69,352	X	8.48%	X 9/12	=	$          3,35,131
Cost of Building
Expenditure for 2021				=	$       30,00,000
Interest Capitalized in 2021				=	$          1,79,352
Expenditure for 2022				=	$       51,75,000
Interest Capitalized in 2022				=	$          3,35,131
Total cost of building				=	$       86,89,483
Interest Expense for 2021:
Total Interest Incurred				=	$       14,24,000
Less : Interest Capitalized				=	$          1,79,352
2021 Expense				=	$       12,44,648
Interest Expense for 2022:
Total Interest Incurred				=	$       14,24,000
Less : Interest Capitalized				=	$          3,35,131
2022 Expense				=	$       10,88,869