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 | $ 1,240,000 |
|---|---|
| March 1, 2024 | 660,000 |
| June 30, 2024 | 450,000 |
| October 1, 2024 | 650,000 |
| January 31, 2025 | 900,000 |
| April 30, 2025 | 1,215,000 |
| August 31, 2025 | 2,160,000 |
On January 1, 2024, the company obtained a $3 million construction loan with a 12% 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 $5,400,000 and $7,400,000 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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Financial Accounting Tools for Business Decision Making
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso
5th Edition
9781118560952, 1118560957, 978-0470239803
