On January 1, 2018, the Mason Manufacturing Company began construction of a buil
ID: 2578504 • Letter: O
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, 2018 March 1, 2018 June 30, 2018 October 1, 2018 January 31, 2019 April 30, 2019 August 31, 2019 $1,200,000 900,000 1,100,000 900,000 315,000 648,000 945,000 On January 1, 2018, the company obtained a $3,500,000 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 $3,000,000 and $7,000,000 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: 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 2 Req 1 and 3 What is the total cost of the building? (Enter your answer in dollars.) Total cost of building 6,167,876Explanation / Answer
1.
Expenditures for 2018:
Interest capitalized in 2018:
=$2,725,000×12%
=$327,000
Expenditures for 2019:
Jan 1, 2019
$3,052,000
(2,725,000+327,000)
×
9/9
=
$3,052,000
$648,000
$3,797,000
Weighted average rate of all other debts:
Interest capitalized in 2019:
$3,500,000×12%=$420,000
(3797,000-$3500,000)×9.4%=$27,918
Total=$447,918
2.
Cost of building:
Expenditures in 2018=$4,100,000
Interest capitalized in 2018=$327,000
Expenditures in 2019=$1,908,000*
Interest capitalized in 2012=$447,918
Total cost of building=$6,782,918
*315000+648000+945000=$1,908,000
3.
Interest expense for 2018:
$3,500,000×12%=$420,000
3,000,000×8%=$240,000
7,000,000×10%=$700,000
Total interest incurred=$1,360,000
Less capitalized=(327,000)
2018 interest expense=$1,033,000
Interest expense for 2019:
Total interest incurred=$1360,000
Less capitalized=$447,918
2019 interest expense=$912,082
Jan 1, 2018 $1,200,000 × 12/12 = $1,200,000 March 1,2018 $900,000 × 10/12 = $750,000 June 30,2018 $1,100,000 × 6/12 = $550,000 Oct 1,2018 $900,000 × 3/12 = $225,000 Accumulated expenditures( before interest) $4,100,000 Average accumulated expenditures $2,725,000Related Questions
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