Question

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 $1,350,000 1, 080, 000 1, 280,000 1,080,000 342, 000 675, 000 972, 000 On January 1, 2018, the company obtained a $3,800,000 construction loan with a 15% interest rate. The loan was outstanding all of 2018 and 2019. The company's other interest-bearing debt included two long-term notes of $4,000,000 and $6,000,000 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. Req 1 and 3 Reg 2 Calculate the amount of interest that Mason should capitalize in 2018 and 2019 using the specific interest method and interest expense that will appear in the 2018 and 2019 income statements. (Enter your answers in dollars.) 2019 35,939 2018 474,000 5,061,000 Interest capitalized Interest expense $ $ $

Answer 1

Expenditure in Project
Dates	Amonut	Months remained in years 2018	To be reported in books	Calculation of Capitalized Interest. @ 15% on 3160000
01 January 2018	$           13,50,000	12	$           13,50,000
01 March 2018	$           10,80,000	10	$              9,00,000
30 June 2018	$           12,80,000	6	$              6,40,000
01 October 2018	$           10,80,000	3	$              2,70,000
Total	$           47,90,000		$ 31,60,000	$                     4,74,000
Loan Type	Amount	Rate of Interest	Interest Amount
Construction loan	$     38,00,000.00	15%	$        5,70,000.00
Long term Notes-Type 1	$     40,00,000.00	8%	$        3,20,000.00
Long term Notes-Type 2	$     60,00,000.00	10%	$        6,00,000.00
	$ 1,38,00,000.00		$     14,90,000.00
	Interest Expenses		$     10,16,000.00
Expenditure in Project
Dates	Amonut	Months remained in years 2019	To be reported	Calculation of Capitalized Interest. @ 15% on 1087500
31 January 2019	$             3,42,000	11	$              3,13,500
30 April 2019	$             6,75,000	8	$              4,50,000
31 August 2019	$             9,72,000	4	$              3,24,000
	$           19,89,000		$ 10,87,500	$                  87,000
Loan Type	Amount	Rate of Interest	Interest Amount
Construction loan	$     38,00,000.00	15%	$        5,70,000.00
Long term Notes-Type 1	$     40,00,000.00	8%	$        3,20,000.00
Long term Notes-Type 2	$     60,00,000.00	10%	$        6,00,000.00
	$ 1,38,00,000.00		$     14,90,000.00
	Interest Expenses		$     14,03,000.00
Total cost of building	$      73,40,000