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 Harch 1, 2018 June 30, 2018 October 1, 2018 January 31, 2019 April 30, 2019 August 31, 2019 $1,170,000 840,000 1,040,000 840,000 306,000 639,000 900,000 points Skipped Print On January 1, 2018, the company obtained a $3,000,000 construction loan with a 15% interest rate. The loan was outstanding all of 2018 and 2019. The company's other interest-bearing debt included two long-term notes of $3,000,000 and $9,000,000 with interest rates of 9% and 13%, 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 Required: 1. Calculate the amount of interest that Mason should capitalize in 2018 and 2019 using the specific interest method 2. What is the total cost of the building? 3. Colculate 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. Req 1 and 3 Req 2 Calculate the amount of interest that Mason should capitalize in 2018 and 2019 using the specific interest method and interest expense that will appear in the 2018 and 2019 income statements. (Enter your answers in dollars.) 2018 2019 Interest capitalized Interest expense Complete this question by entering your answers in the tabs below Print Req 1 and 3Req 2 What is the total cost of the building? (Enter your answer in dollars.)

Answer 1

Requirement-1 expenditure of 2018 january1 2018 march1,2018 Requirement-2 cost of building: expenditure in 2018 interest capitalized in 2018 expenditure in 2019 1,170,000 *(12/12) 840,000 *(10/12) 1,170,000 700,000 3890000 260000 1,040,000 (6/12) 840,000 (3/12) june 30,2018 october1,2018 accumulated expenditure (before interest) average accumulated expenditure 520,000 210,000 1845000 interest capitalized in 2019 807030 Total cost of building 3,890,000 6802030 2,600,000 Requirement-3 interest expenses for 2018 interest capitalized 2600000*15%-260000-interest capitalized in 2018 *(15%) *(996) *(13% 583,500 270,000 1,170,000 3,890,000 3,000,000 9,000,000 expenditure of 2019 january1,2019 (3890000+2600000 6,490,000 (9/9) Total interest incurred less capitalized 2018 expenses 6,490,000 272,000 355,000 100,000 2,023,500 (260,000) 1,763,500 306,000 (8/9) 639,000 *(5/9) 900,000 january 31,2019 april 30,2019 august 31,2019 accumulated expenditure (before interest) average accumulated expenditure weighted average rate of all other debt: interest expenses for 2019 8,335,000 Total interest incurred less capitalized 2019 expenses 7,217,000 2,023,500 (807,030) 1,216,470 *(996) *(13%) 3,000,000 9,000,000 12,000,000 270,000 1,170,000 1,440,000 1440000/12000000-12% interest capitalized 7000000 * 15% *9/12-787500 217000*12%*9/12-19530 (787500+19530)-807030 interest capitalized in 2019