Task1. On January 1, 2013, Mason Manufacturing Company began construction of building to be employed as its office headquarters. The building was completed on September 30, 2014.
Expenditures on project were as follows:
January 1, 2013 $ 1,200,000
March 1, 2013 690,000
June 30, 2013 450,000
October 1, 2013 660,000
January 31, 2014 945,000
April 30, 2014 1,260,000
August 31, 2014 2,250,000
On January 1, 2013, the company acquired a $3 million construction loan with the 12% interest rate. The loan was outstanding all of 2013 and 2014. The company’s other interest-bearing debt included two long-term notes of $5,500,000 and $7,500,000 with interest rates of 9%and 7%, respectively. Both notes were outstanding throughout all of 2013 and 2014. Interest is paid annually on all debt. The company’s fiscal year-end is December 31.
Required:
Question1. Compute the amount of interest that Mason must capitalize in 2013 and 2014 using the weighted-average method.
Question2. What is the total cost of building?
Question3. Compute the amount of interest expense which will appear in the 2013 and 2014 income statements.