On January 1, 2013, the Mason Manufacturing Company began construction of a building to be used as its office headquarters. The building was completed on September 30, 2014.
| Expenditures on the project were as follows: |
|
|
|
|
| January 1, 2013 |
$ |
1,330,000 |
|
| March 1, 2013 |
|
780,000 |
|
| June 30, 2013 |
|
230,000 |
|
| October 1, 2013 |
|
660,000 |
|
| January 31, 2014 |
|
540,000 |
|
| April 30, 2014 |
|
855,000 |
|
| August 31, 2014 |
|
1,440,000 |
|
|
|
On January 1, 2013, the company obtained a $3 million construction loan with a 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 $4,600,000 and $6,600,000 with interest rates of 6% and 8%, respectively. Both notes were outstanding during all of 2013 and 2014. 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 2013 and 2014 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 2013 and 2014 income statements.
|