Question
On January 1, 2016, the Edinger Manufacturing Company began construction of a building to be used as its office headquarters. The building was completed on
On January 1, 2016, the Edinger Manufacturing Company began construction of a building to be used as its office headquarters. The building was completed on June 30, 2017.
Expenditures on the project were as follows:
January 1, 2016 $500,000
March 31, 2016 600,000
June 30, 2016 800,000
October 31, 2016 600,000
January 31, 2017 300,000
March 31, 2017 500,000
May 31, 2017 600,000
On January 1, 2016, the company obtained a $2 million construction loan with a 10% interest rate. The loan was outstanding all of 2016 and 2017. The companys other interest-bearing debt included a long-term note of $5,000,000 with an 8% interest rate, and a mortgage of $3,000,000 on another building with an interest rate of 6%. Both debts were outstanding during all of 2016 and 2017. The companys fiscal year end is December 31.
Required:
1. Calculate the amount of interest that Edinger 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.
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