Problem: 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:
|
01-Jan-13
|
$1,050,000
|
|
01-Mar-18
|
870,000
|
|
30-Jun-18
|
390,000
|
|
01-Oct-18
|
690,000
|
|
31-Jan-19
|
675,000
|
|
30-Apr-19
|
990,000
|
|
31-Aug-19
|
1,710,000
|
On January 1, 2018, the company obtained a $3 million construction loan with a 14% interest rate. The loan was outstanding all of 2018 and 2019. The company's other interest-bearing debt included two long-term notes of $4,900,000 and $6,900,000 with interest rates of 5% and 7%, 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:
Question 1: Calculate the amount of interest that Mason should capitalize in 2018 and 2019 using the weighted-average method.
Question 2: What is the total cost of the building?
Question 3: Calculate the amount of interest expense that will appear in the 2018 and 2019 income statements.
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