Question

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 March 1, 2021 June 30, 2021 October 1, 2021 January 31, 2022 April 30, 2022 August 31, 2022 $1,050,000 630,000 710,000 610,000 315,000 630,000 990,000 On January 1, 2021, the company obtained a $3 million construction loan with a 12% 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 $4,100,000 and $6,100,000 with interest rates of 5% and 7%, 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 What is the total cost of the building? ("Round "Weighted average rate of all debt" to 2 decimal places but do not round other intermediate calculations. Round your answer to the nearest whole dollar.) Total cost of building

Answer 1

Part 1: weighted avg method date Jan 1,2021 Mar 1,2021 Jun 30,2021 Oct 1,2021 calculation of average accumulated expenditure-2021 expenditure capitalisation period weight weighted expenditure c=b/12 a*c 1050000 12 1.00 1050000 630000 10 0.83 525000 7100001 6 0.50 355000 610000 3 0.25 152500 3000000 2082500 Weighted average rate of all debt: borrowing 3000000 4100000 6100000 13200000 Interest rate Interest amount 12% 360000 5% 205000 7% 427000 992000 7.52% Weighted average rate of all debt: (992000/1320000) 156604 Interest capitalized in 2021 (2082500*7.52%

calculation of average accumulated expenditure-2022 date expenditure capitalisation period weight weighted expenditure b c=b/9 ac Jan 1,2022 (3000000+156604) 3156604 91.00 3156604 Jan 31,2022 315000 80.89 280000 Apr 30,2022 630000 5 0.56 350000 Aug 31,2022 990000 10.11 110000 50916041 3896604 219,768 Interest capitalized in 2022 (3896604*7.52%*9/12) Part 2: Expenditures in 2021 Interest capitalized in 2021 Expenditures in 2022 (315000+630000+990000) Interest capitalized in 2022 Total cost of building 3000000 156604 1935000 219,768 5,311,372 Part 3: calculation of Interest Expense Total interest incurred Less: Interest Capitalized 2021 992000 156604 835396 2022 992000 219,768 772,232 Interest Expense