On January 1, 2018, the Mason Manufacturing Company beganconstruction 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 | $ | 1,500,000 | |
| March 1, 2018 | | 1,200,000 | |
| June 30, 2018 | | 1,400,000 | |
| October 1, 2018 | | 1,200,000 | |
| January 31, 2019 | | 360,000 | |
| April 30, 2019 | | 693,000 | |
| August 31, 2019 | | 990,000 | |
|
On January 1, 2018, the company obtained a $4,000,000 constructionloan with a 14% interest rate. The loan was outstanding all of 2018and 2019. The company’s other interest-bearing debt included twolong-term notes of $1,000,000 and $4,000,000 with interest rates of10% and 12%, respectively. Both notes were outstanding during allof 2018 and 2019. Interest is paid annually on all debt. Thecompany’s fiscal year-end is December 31.
Required:
1. Calculate the amount of interest that Masonshould capitalize in 2018 and 2019 using the specific interestmethod.
3. Calculate the amount of interest expense thatwill appear in the 2018 and 2019 income statements.
Calculate the amount of interest that Mason should capitalize in2018 and 2019 using the specific interest method and interestexpense that will appear in the 2018 and 2019 income statements.(Enter your answers in dollars.)
|
| | 2018 | 2019 | | Interest capitalized | $490,000 | | | Interest expense | | |
|
2.
What is the total cost of the building? (Enter your answer indollars.)
