Question

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 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. Complete this question by entering your answers in the tabs below. Req 1 and 3 Req 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.) Show less 2021 2022 Interest capitalized Interest expense < Req 1 and 3 Reg 2 >

Answer 1

2021 2022 1 Interest capitalized $174,066 $240,541 refer (b) and (c) 3 Interest expense $903,934 $837,459 refer(e) 2 Cost of building | $5,529,607 refer (d) (a). Calculate the weighted average rate of all debts, in the manner given below: ABC Debts Interest rate Interest ($) $3,000,000 11% $330,000 $4,200,000 6% $252,000 $6,200,000 8% $496.000 $13,400,000 $1,078,000 7 Weighted average rate of all debts= 8.04% Prepare the spreadsheet showing calculation of weighted average rate of all debts, in the manner given below: A 1 Debts 2 =3*1000000 3 4200000 4 6200000 5 =SUM(A2:A4) B Interest rate 0.11 0.06 0.08 Interest (S) =A2*B2 =A3*B3 =A4 B4 =SUM(C2:C4) 7 Weighted average rate of all debts =C5/A5

Calculate the expenditure, and interest capitalized for 2021, in the manner given below: А B C D Expenditure for 2021 2 January 1, 2021 $1,200,000 12/12 $1,200,000 3 March 1, 2021 $660,000 10/12 $550,000 4 June 30, 2021 $520,0006/12 $260,000 5 October 1, 2021 $620,000 3/12 $155,000 6 Total expenditure $3.000.000 $2,165,000 7 Weighted average rate of debts 8.04% 8 Interest capitalized $174,066 Prepare the spreadsheet showing calculations of expenditure, and interest capitalized for 2021, in the manner given below: А B C D Expenditure for 2021 2 January 1, 2021 1200000 12/12 =B2*(12/12) 3 March 1, 2021 660000 10/12-B3*(10/12) 4 June 30, 2021 520000 6/12 =B4*(6/12) 5 October 1, 2021 620000 3/12 =B5*(3/12) 6 Total expenditure =SUM(B2:B5) ESUMD2:05) 7 Weighted average rate of debts 0.0804 8 Interest capitalized =D6*D7

(c). Calculate the expenditure, and interest capitalized for 2022, in the manner given below: B C D Expenditure for 2022 2 January 1, 2022 ($3,000,000+$174,066) $3,174,066 9/9 $3,174,066| 3 January 31, 2022 $360,000 8/9 $320,000 4 April 30, 2022 $675,000 5/9 $375,000 5 August 31, 2022 $1,080,000 1/9 $120,000 6 Total expenditure $5,289,066 $3.989,066 7 Weighted average rate of debts 8.04% 8 Interest capitalized $240,541 Prepare the spreadsheet showing calculations of expenditure, and interest capitalized for 2022, in the manner given below: А Expenditure for 2022 January 1, 2022 2 ($3,000,000+$174,066) =3000000+174066 9/9-B2*(9/9) 3 January 31, 2022 360000 8/9 =B3*(8/9) 4 April 30, 2022 675000 5/9 =B4*(5/9) 5 August 31, 2022 1080000 1/9 =B5/9 6 Total expenditure =SUM(B2:B5) =SUMD2:D5) 7 Weighted average rate of debts 0.0804 8 Interest capitalized =D6*D7*(9/12)

(d). Calculate the cost of building, in the manner given below: B Cost of building 2 Expenditure for 2021 (refer b) $3,000,000 3 Interest capitalized in 2021 (refer b) | $174,066| Expenditure for 2022 $2,115,000 4 ($360,000+$675,000+$1,080,000) 5 Interest capitalized in 2022 (refer c) $240,541 6 Total cost of building $5,529,607 (e). Calculate the interest expense for the year 2021, 2022, in the manner given below: А в Interest expense for 2021 2 Total interest incurred (refer a $1.078.000 3 Less: Interest capitalized (refer b) $174,066 2021 interest expense $903,934 mto Interest expense for 2022 7 Total interest incurred (refer a) $1.078.000 8 Less: Interest capitalized (refer c) $240,541 9 2022 interest expense $837,459