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 | $ 1,500,000 |
|---|---|
| March 1, 2024 | 1,200,000 |
| June 30, 2024 | 1,400,000 |
| October 1, 2024 | 1,200,000 |
| January 31, 2025 | 360,000 |
| April 30, 2025 | 693,000 |
| August 31, 2025 | 990,000 |
On January 1, 2024, the company obtained a $4,000,000 construction loan with a 14% interest rate. The loan was outstanding all of 2024 and 2025. The companys other interest-bearing debt included two long-term notes of $1,000,000 and $4,000,000 with interest rates of 10% and 12%, 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:
- Calculate the amount of interest that Mason should capitalize in 2024 and 2025 using the specific interest 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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Cost Accounting A Managerial Emphasis
Authors: Charles T Horngren
4th Edition
0131797395, 978-0131797390
