On January 1, 2013, the Mason Manufacturing Company began construction of a buil
ID: 2706451 • Letter: O
Question
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.
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
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.
Explanation / Answer
For 2011:
Date Expenditure Average Accumulated Expenditure
1/1/2011 1,000,000 x 12/12 1,000,000
3/1/2011 600,000 x 10/12 500,000
6/30/2011 800,000 x 6/12 400,000
10/1/2011 600,000 x 3/12 150,000
Total: 2,050,000
Interest capitalized for 2011=2,050,000 x 10% = 205000
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3,000,000 x 10% = 300,000
4,000,000 x 6%= 240,000
6,000,000 x 8% = 480,000
Total= 1,020,000
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1,020,000 - 205,000= 815,000 (interest expense 2011)
(3,000,000 + 205000 = 3,205,000) this total goes to 2012
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other outstanding notes:
4,000,000 x 6% = 240,000
6,000,000 x 8% = 480,000
total:
10,000,000 720,000
weighted avg= 720,000/10,000,000 = 7.2%
2012
1/1/2012 3,205,000 x 9/9 = 3,205,000 (because the project completed Sep.2012,it's divided by 9)
1/31/2012 270,000 x 8/9 = 240,000
4/30/2012 585,000 x 5/9 = 325000
8/31/2012 900,000 x 1/9 = 100,000
Total = 3,870,000
from 3,870,000===> 3,000,000 x 10% = 300,000 x 10% x 9/12 = 22500
and remaining ==> 870,000 x 7.2% x 9/12 = 46980
interest capitalized in 2012 ==> 22,500 + 46980 = 271,980
1,020,000 - 271,980 = 748020 (interest expense 2012)
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Cost of Building = 3,205,000 + 270,000 + 585,000 + 900,000 + 271,980= 5,231,980
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