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:

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 $4,600,000 and $6,600,000 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.

Using the weighted-average interest method, answer the following questions:

1. Calculate the amount of interest that Mason should capitalize in 2024 and 2025 using the weighted-average method.
2. What is the total cost of the building?
3. Calculate the amount of interest expense that will appear in the 2024 and 2025 income statements.

(The answers below were not correct)

Now, to answer your questions:

1. Interest capitalized in 2024 and 2025:

- 2024: $103,741.94

- 2025: $316,200.00

2. Total cost of the building:

The total cost of the building is the sum of all expenditures:

Total cost of the building = $1,330,000 + $780,000 + $230,000 + $540,000 + $2,635,000 = $5,515,000

3. Interest expense that will appear in the 2024 and 2025 income statements:

- 2024: $3,000,000 (construction loan) 12% = $360,000 (This is the interest expense related to the construction loan, not capitalized.)

- 2025: $3,000,000 (construction loan) 12% = $360,000 (This is the interest expense related to the construction loan, not capitalized.)

January1,2024March1,2024June30,2024October1,2024January31,2025April30,2025August31,2025$1,330,000780,000230,000660,000540,000855,0001,440,000