On January 1, 2021, the company obtained a $3 million loan with a 11% interest rate. The building was completed on September 30, 2022. Expenditures on the project were as follows:
January 1, 2021 | $ | 1,200,000 | |
March 1, 2021 | 660,000 | ||
June 30, 2021 | 520,000 | ||
October 1, 2021 | 620,000 | ||
January 31, 2022 | 360,000 | ||
April 30, 2022 | 675,000 | ||
August 31, 2022 | 1,080,000 | ||
On January 1, 2021, the company obtained a $3 million construction
loan with a 11% 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 $4,200,000
and $6,200,000 with interest rates of 6% and 8%, 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.
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.
2021 | 2022 | ||||
Interest Capitalized | $ 1,74,066 | $ 2,40,541 | |||
Interest Expense | $ 9,03,934 | $ 8,37,459 | |||
Total cost of building | $ 55,29,607 | ||||
Workings: | |||||
Weighted Average rate of all debt:- | |||||
$ 30,00,000 | X | 11% | = | $ 3,30,000 | |
$ 42,00,000 | X | 6% | = | $ 2,52,000 | |
$ 62,00,000 | X | 8% | = | $ 4,96,000 | |
$ 1,34,00,000 | $ 10,78,000 | ||||
Weighted Average rate of all debt = | 8.04% | ||||
($1078000/ $13400000) | |||||
Expenditure for 2021 | |||||
Jan 1,2021 | $ 12,00,000 | X | 12/12 | = | $ 12,00,000 |
March 1, 2021 | $ 6,60,000 | X | 10/12 | = | $ 5,50,000 |
June 30, 2021 | $ 5,20,000 | X | 6/12 | = | $ 2,60,000 |
October 1, 2021 | $ 6,20,000 | X | 3/12 | = | $ 1,55,000 |
$ 30,00,000 | $ 21,65,000 | ||||
Interest Capitalized in 2021 | |||||
$ 21,65,000 | X | 8.04% | = | $ 1,74,066 | |
Expenditure for 2022 | |||||
Jan 1, 2022 ($3000000 + $174066) | $ 31,74,066 | X | 9/9 | = | $ 31,74,066 |
Jan 31, 2022 | $ 3,60,000 | X | 8/9 | = | $ 3,20,000 |
April 30, 2022 | $ 6,75,000 | X | 5/9 | = | $ 3,75,000 |
August 31. 2022 | $ 10,80,000 | X | 1/9 | = | $ 1,20,000 |
$ 52,89,066 | $ 39,89,066 | ||||
Interest Capitalized in 2022 | |||||
$ 39,89,066 | X | 8.04% | X 9/12 | = | $ 2,40,541 |
Cost of Building | |||||
Expenditure for 2021 | = | $ 30,00,000 | |||
Interest Capitalized in 2021 | = | $ 1,74,066 | |||
Expenditure for 2022 | = | $ 21,15,000 | |||
Interest Capitalized in 2022 | = | $ 2,40,541 | |||
Total cost of building | = | $ 55,29,607 | |||
Interest Expense for 2021: | |||||
Total Interest Incurred | = | $ 10,78,000 | |||
Less : Interest Capitalized | = | $ 1,74,066 | |||
2021 Expense | = | $ 9,03,934 | |||
Interest Expense for 2022: | |||||
Total Interest Incurred | = | $ 10,78,000 | |||
Less : Interest Capitalized | = | $ 2,40,541 | |||
2022 Expense | = | $ 8,37,459 |
On January 1, 2021, the company obtained a $3 million loan with a 11% interest rate....
On January 1, 2021, the company obtained a $3 million loan with a 11% interest rate. The building was completed on September 30, 2022. Expenditures on the project were as follows: January 1, $1,200,000 2021 March 1, 2021 660,000 June 30, 2021 520,000 October 1, 620,000 2021 January 31, 360,000 2022 April 30, 2022 675,000 August 31, 1,080,000 2022 On January 1, 2021, the company obtained a $3 million construction loan with a 11% interest rate. Assume the $3 million...
On January 1, 2021, the company obtained a $3 million loan with a 11% interest rate. The building was completed on September 30, 2022. Expenditures on the project were as follows: January 1, 2021 $ 1,290,000 March 1, 2021 780,000 June 30, 2021 240,000 October 1, 2021 690,000 January 31, 2022 1,080,000 April 30, 2022 1,395,000 August 31, 2022 2,520,000 On January 1, 2021, the company obtained a $3 million construction loan with a 11% interest rate. Assume the $3...
On January 1, 2021, the company obtained a $3 million loan with a 11% interest rate. The building was completed on September 30, 2022. Expenditures on the project were as follows: January 1, 2021 $ 1,000,000 March 1, 2021 840,000 June 30, 2021 480,000 October 1, 2021 680,000 January 31, 2022 630,000 April 30, 2022 945,000 August 31, 2022 1,620,000 On January 1, 2021, the company obtained a $3 million construction loan with a 11% interest rate. Assume the $3...
On January 1, 2021, the company obtained a $3 million loan with a 12% interest rate. The building was completed on September 30, 2022. Expenditures on the project were as follows: January 1, 2021 $ 1,170,000 March 1, 2021 990,000 June 30, 2021 110,000 October 1, 2021 730,000 January 31, 2022 855,000 April 30, 2022 1,170,000 August 31, 2022 2,070,000 On January 1, 2021, the company obtained a $3 million construction loan with a 12% interest rate. Assume the $3...
On January 1, 2021, the company obtained a $3 million loan with a 12% interest rate. The building was completed on September 30, 2022. Expenditures on the project were as follows: January 1, 2021 $ 1,200,000 March 1, 2021 690,000 June 30, 2021 450,000 October 1, 2021 660,000 January 31, 2022 945,000 April 30, 2022 1,260,000 August 31, 2022 2,250,000 On January 1, 2021, the company obtained a $3 million construction loan with a 12% interest rate. Assume the $3...
On January 1, 2021, the company obtained a $3 million loan with a 12% interest rate. The building was completed on September 30, 2022. Expenditures on the project were as follows: January 1, 2021 $ 1,170,000 March 1, 2021 990,000 June 30, 2021 110,000 October 1, 2021 730,000 January 31, 2022 855,000 April 30, 2022 1,170,000 August 31, 2022 2,070,000 On January 1, 2021, the company obtained a $3 million construction loan with a 12% interest rate. Assume the $3...
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: January 1, 2021 $ 1,040,000 March 1, 2021 810,000 June 30, 2021 450,000 October 1, 2021 700,000 January 31, 2022 1,125,000 April 30, 2022 1,440,000 August 31, 2022 2,610,000 On January 1, 2021, the company obtained a $3 million construction loan with a 10% interest rate. Assume the $3...
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:January 1, 2021$1,040,000March 1, 2021810,000June 30, 2021450,000October 1, 2021700,000January 31, 20221,125,000April 30, 20221,440,000August 31, 20222,610,000On 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...
On January 1, 2021, the company obtained a $3 million loan with a 12% interest rate. The building was completed on September 30, 2022. Expenditures on the project were as follows: January 1, 2021 $ 1,200,000 March 1, 2021 690,000 June 30, 2021 450,000 October 1, 2021 660,000 January 31, 2022 945,000 April 30, 2022 1,260,000 August 31, 2022 2,250,000 On January 1, 2021, the company obtained a $3 million construction loan with a 12% interest rate. Assume the $3...
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: January 1, 2021 March 1, 2021 June 30, 2021 October 1, 2021 January 31, 2022 April 30, 2022 August 31, 2022 $1,000,000 600,000 800,000 600,000 270,000 585,000 900,000 On January 1, 2021, the company obtained a $3 million construction loan with a 10% interest rate. Assume the $3 million...