On January 1, 2018, the Mason Manufacturing Company began construction of a buil

Question

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, 2818 March 1, 2018 June 30, 2018 October 1, 2818 January 31, 2019 April 38, 2019 August 31, 2819 1,200,eee 1,400,000 1,200,00e 360,000 998,e00 On January 1, 2018, the company o 2018 and 2019. The company's other interest-bearing debt included two long-term notes of $1.000,000 and $4,000.000 with interest rates of 10% and 12%, 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 a $4,000,000 constructi on loan with a 14% interest rate. The loan was outstanding all of 1. Calculate the amount of interest that Mason should capitalize in 2018 and 2019 using the specific interest method 2. What is the total cost of the building? 3. Calculate the amount of interest expense that will appear in the 2018 and 2019 income statements. Complete this question by entering your answers in the tabs below. Req 1 and 3 Req 2 Calculate the amount of interest that Mason should capitalize in 2018 and 2019 using the specific interest method and interest expense that will appear in the 2018 and 2019 income statements. (Enter your answers in dollars.)

Explanation / Answer

Expenditures for 2018 01-Jan-18 1500000*12/12 1500000 01-Mar-18 1200000*10/12 1000000 01-Jun-18 1400000*6/12 700000 01-Oct-18 1200000*3/12 300000 Accumulated expenditures (before interest) 5300000 Average accumulated expenditures 3500000 Interest capitalized: 3500000*14%= 490000 interest capitalised in 2018 2019 01-Jan-19 5300000+490000 = 5790000 5790000 5790000*9/9 5790000 31-Jan-19 360000 360000*8./9 320000 30-Apr-19 693000 693000*5/9 385000 31-Aug-19 990000 990000*1/9 110000 Accumulated expenditures (before interest) 7833000 Average accumulated expenditures 6605000 Interest capitalized 6605000 5300000 5300000*14%*9/12 556500 1305000 1305000*11.6%*9/12 113535 Interest capitalized in 2019 670035 * Weighted-average rate of all other debt: 1000000*10% 100000 4000000*12% 480000 580000/5000000 5000000 580000 11.60% 2 Accumulated expenditures 9/30/19 before interest capitalization (above) 7833000 2019 interest capitalized (above) 670035 Total cost of building 8503035

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