Question
On January 1, 2024, the Mason Manufacturing Company began construction of a building to be used as its office headquarters. The building was completed on
On January 1, 2024, the Mason Manufacturing Company began construction of a building to be used as its office headquarters. The building was completed on September 30, 2025. Expenditures on the project were as follows:
| January 1, 2024 | $ 1,290,000 |
|---|---|
| March 1, 2024 | 780,000 |
| June 30, 2024 | 240,000 |
| October 1, 2024 | 690,000 |
| January 31, 2025 | 1,080,000 |
| April 30, 2025 | 1,395,000 |
| August 31, 2025 | 2,520,000 |
On January 1, 2024, the company obtained a $3 million construction loan with a 11% interest rate. Assume the $3 million loan is not specifically tied to construction of the building. The loan was outstanding all of 2024 and 2025. The companys other interest-bearing debt included two long-term notes of $5,800,000 and $7,800,000 with interest rates of 6% and 8%, respectively. Both notes were outstanding during all of 2024 and 2025. Interest is paid annually on all debt. The companys fiscal year-end is December 31.
Required:
Using the weighted-average interest method, answer the following questions:
Calculate the amount of interest that Mason should capitalize in 2024 and 2025 using the weighted-average method.
What is the total cost of the building?
Calculate the amount of interest expense that will appear in the 2024 and 2025 income statements.
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An Audit Of The Case Study Method
Authors: Michael Masoner
1st Edition
027592761X, 978-0275927615
