1. Calaveras Tire exchanged equipment for two pickup trucks. The book value and fair value of the equipment were $21,000 (original cost of $66,500 less accumulated depreciation of $45,500) and $25,500, respectively. To equalize fair values, Calaveras paid $8,500 in cash. Assume the exchange lacks commercial substance.

At what amount will Calaveras value the pickup trucks?

How much gain or loss will the company recognize on the exchange?

2. On January 1, 2016, the Mason Manufacturing Company began construction of a building to be used as its office headquarters. The building was completed on September 30, 2017.

Expenditures on the project were as follows:

On January 1, 2016, the company obtained a $4,000,000 construction loan with a 14% interest rate. The loan was outstanding all of 2016 and 2017. The companys 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 2016 and 2017. Interest is paid annually on all debt. The companys fiscal year-end is December 31.

Required:

1.	Calculate the amount of interest that Mason should capitalize in 2016 and 2017 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 2016 and 2017 income statements.