Assignment Task: 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:
January 1, 2018 = $1,850,000
March 1, 2018 = $1,500,000
June 30, 2018 = $1,700,000
October 1, 2018 = $1,500,000
January 31, 2019 = $405,000
April 30, 2019 = $738,000
August 31, 2019 = $1,035,000
On January 1, 2018, the company obtained a $4,500,000 construction loan with a 12% interest rate. The loan was outstanding all of 2018 and 2019. The company's other interest-bearing debt included two long-term notes of $6,000,000 and $9,000,000 with interest rates of 8% and 10%, 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.
Required:
Question 1: Calculate the amount of interest that Mason should capitalize in 2018 and 2019 using the specific interest 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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