On January 1, 2016, the Mason Manufacturing Company began construction of a building to be used as its office headquarters. The building was completed on September 30, 2017.
Expenditures on the project were as follows:
Janurary 1, 2016 $1,000,000
March 1, 2016 600,000
June 30,2016 800,000
October 1, 2016 600,000
January 31,2017 270,000
April 30, 2017 585,000
August 31, 2017 900,000
On January 1, 2016, the company obtained a $3,000,000 construction loan with a 10% interest rate. The loan was outstanding all of 2016 and 2017. The company's other interest-bearing debt included two long-term notes of $4,000,000 and $6,000,000 with interest rates of 6% and 8%, respectively. Both notes were outstanding during all of 2016 and 2017. Interest is paid annually on all debt. The company's fiscal year-end is December 31.
1. Calculate the amount of interest that Mason should capitalize in 2016 and 2017 using the weighted-average method.
2. What is the total cost of the building?
3. Calculate the amount of interest expense that will appear in the 2016 and 2017 income statements.