Question
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
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: |
January 1, 2016 | $ | 1,230,000 | |
March 1, 2016 | 720,000 | ||
June 30, 2016 | 380,000 | ||
October 1, 2016 | 670,000 | ||
January 31, 2017 | 990,000 | ||
April 30, 2017 | 1,305,000 | ||
August 31, 2017 | 2,340,000 | ||
|
On January 1, 2016, the company obtained a $3 million construction loan with a 12% interest rate. The loan was outstanding all of 2016 and 2017. The companys other interest-bearing debt included two long-term notes of $5,600,000 and $7,600,000 with interest rates of 8% and 10%, 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. Assume the $3 million loan is not specifically tied to construction of the building. |
Required: |
1. | Calculate the amount of interest that Mason should capitalize in 2016 and 2017 using the weighted-average method. (Do not round intermediate calculations. Round your answers to the nearest whole dollars.) |
2. | What is the total cost of the building? (Do not round intermediate calculations. Round your answer to the nearest whole dollar.) |
3. | Calculate the amount of interest expense that will appear in the 2016 and 2017 income statements. (Do not round intermediate calculations. Round your answers to the nearest whole dollars.) |
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