Question

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.) 2021 2022 Interest capitalized Interest expense

Answer 1

Solution 1:
Year 2021: Weighted-Average accumulated expenditure and interest capitalized
Date	Amount	Capitalization period	Weighted Average Accumulated Expenditures
1-Jan-21	$1,200,000	12/12	$1,200,000
1-Mar-21	$660,000	10/12	$550,000
30-Jun-21	$520,000	6/12	$260,000
1-Oct-21	$620,000	3/12	$155,000
Total	$3,000,000		$2,165,000
*Interest rate	11%
Interest capitalized in 2021	$238,150

Year 2022: Weighted-Average accumulated expenditure
Date	Amount	Capitalization period	Weighted Average Accumulated Expenditures
1-Jan-22	$3,238,150	9/9	$3,238,150
31-Jan-22	$360,000	8/9	$320,000
30-Apr-22	$675,000	5/9	$375,000
31-Aug-22	$1,080,000	1/9	$120,000
Total	$5,353,150		$4,053,150
Weighted average interest rate of all other debt
Debt	Amount	Interest rate	Interest amount
6% Note	$4,200,000	6%	$252,000
8% Note	$6,200,000	8%	$496,000
Totals	$10,400,000		$748,000
Weighted average rate (total interets/ total debt)	7.19%
Year 2022: Interest Capitalized
Debt	Amount
3000000*11%*9/12 =	$247,500
(4053150- 3000000)*7.19%*9/12 =	$56,809
Total interest capitalized in 2022	$304,309

Solution 2:
Computation of Cost of Building
Total expenditure before capitalization(5353150-238150)	$5,115,000
Add: Interest capitalized in 2021	$238,150
Add: Interest capitalized in 2022	$304,309
Total cost of Building	$5,657,459

Solution 3:
Computation of Interest expense
Debt	Amount	Interest rate	Interest amount
Construction Loan	$3,000,000	11%	$330,000
5% Note	$4,200,000	6%	$252,000
8% Note	$6,200,000	8%	$496,000
Total interest incurred			$1,078,000
	2021	2022
Total interest incurred	$1,078,000	$1,078,000
Less: Interest Capitalized	$238,150	$304,309
Interest Expense	$839,850	$773,691