Question

On January 1, 2018, the Mason Manufacturing Company began construction of a building to be used as its office headquarters The building was completed on September 30, 2019. Expenditures on the project were as follows: January 1, 2018 March 1, 2018 June 30, 2018 October 1, 2018 January 31, 2019 April 30, 2019 August 31, 2019 $1,003, een 840,000 430, see 652, 63e. 945,000 1.620,800 On January 1, 2018, the company obtained a $3 million construction loan with a 11% interest rate the loan was outstanding all of 2018 and 2019. The company's other interest-bearing debt included two long-term notes of $4,800,000 and $6,800,000 with interest rates of 8% and 10%, respectively. Both notes were outstanding during all of 2018 and 2019. Interest is paid annually on all debt. The company's fiscal year-end is December 31. Assume the $3 million loan is not specifically tied to construction of the building Required: 1. Calculate the amount of interest that Mason should capitalize in 2018 and 2019 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 2018 and 2019 income statements. Complete this question by entering your answers in the tabs below. Reg 1 and 3 Reg 2 Calculate the amount of interest that Mason should capitalize in 2018 and 2010 using the weighted average method and interest expense that will appear in the 2018 and 2019 income statements. Do not round your intermediate calculations. Round your answers to the nearest whole dollar) 2019 2018 803,155 $ Interest capitalized Interest expense

Could you show how this problem is worked, when according to the last sentence of the paragraph ( Assume the $3million loan is not specifically tied to construction of building)?

In one instance there's specific borrowing and in another there is non- specific. I want to see the difference and answer to this problem.

Answer 1

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Part 1
Expenditures for 2018
January 1 2018	$               1,000,000	*12/12	$   1,000,000
March 1 2018	$                  840,000	*10/12	$       700,000
June 30 2018	$                  480,000	*6/12	$       240,000
October 1 2018	$                  680,000	*3/12	$       170,000
Accumulated Expenditure (Before interest)	$               3,000,000
Average Accumulated Expenditure			$   2,110,000
Interest Capitalized	$2,110,000*11%		$       232,100
Expenditures for 2019
January 1 2019 ($3,000,000+$232,100)	$               3,232,100	*9/9	$   3,232,100
January 31 2019	$                  630,000	*8/9	$       280,000
April 30 2019	$                  945,000	*5/9	$       525,000
August 31 2019	$               1,620,000	*1/9	$       180,000
Accumulated Expenditure (Before interest)	$               6,427,100
Average Accumulated Expenditure			$   4,217,100
Interest Capitalized:
			Rate		Interest
Average Accumulated Expenditure		$     4,217,100
Less: Loan		$   -3,000,000	11%	$3,000,000*11%*9/12	$   247,500
See working below for rate		$     1,217,100	9.17%	$989,900*9.17%*9/12	$     83,728
Total					$   331,228
Working
	$               4,800,000	8%	$       384,000
	$               6,800,000	10%	$       680,000
	$            11,600,000		$   1,064,000
$1,064,000/$11,600,000		9.17%
Part 2
Accumulated Expenditure (Before interest)	Year 2019		$   6,427,100
Add: 2019 Interest			$       331,228
Cost of Building			$   6,758,328
Part 3
Year 2018
$3,000,000*11%		$        330,000
$4,800,000*8%		$        384,000
$6,800,000*10%		$        680,000
Total Interst Incurred		$     1,394,000
Less: Interest Capitalized	From Part-1	$       -232,100
2018 Interest Expense		$     1,161,900
Year 2019
Total Interst Incurred		$     1,394,000
Less: Interest Capitalized	From Part-2	$       -331,228
2019 Interest Expense		$     1,062,772