On January 1, 2008, the Jonathan Company began construction of a new building to be used as its office headquarters. The building was completed and ready for use on September 30, 2009.
|
3-Jan-08
|
$1,000,000
|
|
1-Mar-08
|
600,000
|
|
30-Jun-08
|
800,000
|
|
1-Oct-08
|
600,000
|
|
31-Jan-09
|
270,000
|
|
30-Apr-09
|
585,000
|
|
31-Aug-09
|
900,00
|
Expenditures on construction were as follows:
On January 2, 2008, the company obtained a $3,000,000 construction loan with a 10% interest rate. The loan was outstanding all of 2008 and 2009. The company's other interest-bearing debt consisted of two long-term notes of $4,600,000 and $6,000,000 with interest rates of 6% and 8%, respectively. Both notes were outstanding all of 2008 and 2009. The company's fiscal year end is December 31.
Required: Show your work.
a. Calculate the amount of interest Jonathan should capitalize as part of the cost of the building in 2008 and 2009.
b. What is the total cost of the building?
Calculate the amount of interest expense that will appear on the 2008 and 2009 income statements.