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 March 1, 2018 June 30, 2018 October 1, 2018 January 31, 2019 April 30, 2019 August 31, 2019 $2,020,000 1,740,000 1,940,000 1,740,000 441,000 774,000 1,071,000 On January 1, 2018, the company obtained a $4,900,000 construction loan with a 12% interest rate. The loan was outstanding all of 2018 and 2019. The company's other interest-bearing debt included two long-term notes of $2,000,000 and $8,000,000 with interest rates of 8% and 10%, 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. Complete this question by entering your answers in the tabs below. Case A. Kapono Farms exchanged an old tractor for a newer model. The old tractor had a book value of $14,000 (original cost of $32,000 less accumulated depreciation of $18,000) and a fair value of $9,400. Kapono paid $24,000 cash to complete the exchange. The exchange has commercial substance. Required: 1. What is the amount of gain or loss that Kapono would recognize on the exchange? What is the initial value of the new tractor? 2. Assume the fair value of the old tractor is $18,000 instead of $9,400. What is the amount of gain or loss that Kapono would recognize on the exchange? What is the initial value of the new tractor? Complete this question by entering your answers in the tabs below. Required 1 Required 2 What is the amount of gain or loss that Kapono would recognize on the exchange? What is the initial value of the new tractor? Initial value of new tractor Case B. Kapono Farms exchanged 100 acres of farmland for similar land. The farmland given had a book value of $520,000 and a fair value of $740,000. Kapono paid $54,000 cash to complete the exchange. The exchange has commercial substance. Required: 1. What is the amount of gain or loss that Kapono would recognize on the exchange? What is the initial value of the new land? 2. Assume the fair value of the farmland given is $416,000 instead of $740,000. What is the amount of gain or loss that Kapono would recognize on the exchange? What is the initial value of the new land? 3. Assume that the exchange lacked commercial substance. What is the amount of gain or loss that kapono would recognize on the exchange? What is the initial value of the new land? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 What is the amount of gain or loss that Kapono would recognize on the exchange? What is the initial value of the new land? Initial value of new land
