On January 1, 2018, the Mason Manufacturing Company began construction of a building to be used as itsoffice headquarters. The building was completed on September 30, 2019. Expenditures on the project were asfollows:January 1, 2018 $1,000,000March 1, 2018 600,000June 30, 2018 800,000October 1, 2018 600,000January 31, 2019 270,000April 30, 2019 585,000August 31, 2019 900,000On January 1, 2018, the company obtained a $3 million construction loan with a 10% interest rate. The loanwas outstanding all of 2018 and 2019. The company’s other interest-bearing debt included two long-termnotes of $4,000,000 and $6,000,000 with interest rates of 6% and 8%, respectively. Both notes were outstanding during all of 2018 and 2019. Interest is paid annually on all debt. The company’s fiscal year-end isDecember 31.Required:1. Calculate the amount of interest that Mason should capitalize in 2018 and 2019 using the specific interestmethod.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.
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 $1,000,000
March 1, 2018 600,000
June 30, 2018 800,000
October 1, 2018 600,000
January 31, 2019 270,000
April 30, 2019 585,000
August 31, 2019 900,000
On January 1, 2018, the company obtained a $3 million construction loan with a 10% interest rate. The loan
was outstanding all of 2018 and 2019. The company’s other interest-bearing debt included two long-term
notes of $4,000,000 and $6,000,000 with interest rates of 6% and 8%, 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.
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