Question

Problem 10-9 Interest capitalization; specific interest method [LO10-7) 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 $2,050,000 1,800,000 2,800,000 1,800,000 450,000 783,000 1,080,000 On January 1, 2018, the company obtained a $5,000,000 construction loan with a 9% Interest rate. The loan was outstanding all of 2018 and 2019. The company's other interest-bearing debt included two long-term notes of $6,000,000 and $9,000,000 with interest rates of 5% and 8%, 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?

Answer 1

Answr; O In 2013, Avcrage acaumulated Erpendikene Capenditaicx fracton) fraction Date sxpenditere 4/2012 tal1a 2,050.000. 2,050,000 tol12 31 2a18 1500.000 800:000 6/30/2018. L000,000 ...ఏ.0ం 3/12 450,000 1800,000. 5,000.000 Total 7650000 accumewoted Ezpenditurx înterest capitaliãe = tota avcrnge înterest vate = $5,000,000x 9./. = 450;000. .. întaut copitali3c in abl8 = $ 450i00- In 2019 11/19 = Total Expenditene it mtrest cafitolac expand-tae on on i19 = 7 , 650,000 + 450,000= 8100,000

accumuloted eiprditur. average Expandktenes fraction 42019 al19 Date Cexpuretiture xfraction) 8100.000 100,000 yo0.00. 450,000 435,000 u/30l19 5/14 783,000 8/al19 Total 120,000 h080,000 9:055,000. tour3.000 To vate: foiaupal Rate १n+st s 6,000.000 3001000. $9.000.00 720,000 " (४ $1,020,000- $15.000,000 interest votes = 1,020,000/15,000.00. 6.8 /. interest copitatiae'in 2019 upto $ 5, 000, 000 intexest vat 9/. Afti 45,000 000 interest vate 6.8./. :. înterest capita&ise = 5,000, 000 x91. = 450, 000 .

(9,055,000 - S,000,000 ) » 6.8 /. -f235,740 interest capitalise in d019 - 450,000 + 245,740 = 725, 740 în d019 =$ 125,740 ..interist capitadize Total sxpenditeve. 3n 2019 $10,413,000 intacst capitalie_în d19 $105.140 Talal cast-f baulding $15138,740 :Total cast d beilding = $11,138, 740 Loon amount înterstrate interect incuned(loan amouct x întocstrate ). $450.000 $5,000.000. $ 6.000.000 $300.00. f9,000.000 81. FTolal intenst incured. J80,000

intacst Expense in 2018 Total interestincerved $1.410,000. ५ Lay: 'untaust capitaliac în aN2. 1,020,000 interst Expense în ao12. interst Expense. in 2019:- Total întercsl incemed $470,000 185,740 $744,260 Less : Brteresf capi-takiaedin alg. apcase în intercst