Question

explain it please

Check my work 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 $1,000,000 600,000 800,000 600.000 270,000 585,000 900,000 On January 1, 2018, the company obtained a $3 million construction loan with a 10% 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 6% 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? 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.

Answer 1

Please find below table useful to compute desired results: -

|н K Particulars Jan. 1 Mar. 1 2018 2019 Particulars Given Interest Expense 1000000 |=B2*12/12 =B3*10/12 |=B4*6/12 =B5*3/12 |=SUM(F2:F5) Accumulated Expenditure (Before Interest) =SUM(B2:B5) =F6*B10 =F7+F8 =B6*8/9 =B7*5/9 =B8*1/9 |=SUM(G2:G5) =B6+B7+B8+F7+F8 =B9*B10*9/12+(G6-B9)*F14*9/12 2 Jan. 1, 2018 for Year 201s 3 Mar. 1, 2018 Rate Interest =B10 =14*J4 =C11 =15*J5 600000 Amount Jun. 1 Oct. 1 Average Accumulated Expenditure =B9 4 Jun. 1, 2018 800000 5 Oct. 1, 2018 6 Jan. 31, 2019 7 Apr. 30, 2019 8 Aug. 31, 2019 9 Loan amount 600000 =B11 270000 585000 900000 |=C12 =16*J6 |=SUM(K4+K5+K6) =F8 =K7-K8 =B12 Total Interest Incurred Interest Capitalized Less: capitalized Interest Expense in 2018 3000000 =10/100 10 Interest on loan Weighted Average Rate of all other Debts Interest =E12*F12 =E13*F13 |=G12+G13 Rate |=C11 11 Interest Bearing debt 1 4000000 =6/100 12 Interest Bearing debt 2 |l6000000 =8/100 Amount =B11 Interest Expenses for 2019 Total Interest incurred Less: Capitalized Interest Expenses in 2019 |=K7 =B12 =C12 =G8 13 =E12+E13 =G14/E14 =K12-K13 14 15 Particulars Cost of Building Expenditure in 2018 Interest Capitalized in 2018 Expenditure in 2019 Interest Capitalized in 2019 Total Cost of Building Amount 16 17 =F7 18 =F8 19 |=B6+B7+B8 =G8 =SUM(F18:F21) 20 21 22

End results would be as follows: -

Interest Expense Particulars Given Particulars 2018 2019 1,000,000 3,205,000 Jan. 1, 2018 1,000,000 Jan. 1 for Year 2018 Mar. 1, 2018 600,000 Mar. 1 500,000 240,000 Amount Rate Interest 3,000,000 | 10.00% 4,000,000 6.00% 300,000 Jun. 1, 2018 Oct. 1, 2018 800,000 Jun. 1 400,000 325,000 Oct. 1 600,000 150,000 2,050,000 3,870,000 3,000,000 4,960,000 240,000 100,000 Jan. 31, 2019 7 Apr. 30, 2019 8 Aug. 31, 2019 Loạn amount 8.00% 270,000 Average Accumulated Expenditure Accumulated Expenditure (Before Interest) Interest Capitalized 6,000,000 480,000 585.000 Total Interest Incurred 1,020,000 271,980|| Less: capitalized 900.000 205,000 205,000 3,000,000 Interest Expense in 2018 815,000 10.00% Weighted Average Rate of all other Debts Interest on loan 10 4.000,000 6.00%|| Amount 6,000,000 8.00% Interest Bearing debt 1 Interest Bearing debt 2 Rate Interest Interest Expenses for 2019 11 6.00% 4,000,000 Total Interest incurred 240.000 1,020,000 12 Less: Capitalized 6,000,000 8.00% 480,000 271,980 13 10,000,000 7.20% 720,000 Interest Expenses in 2019 748,020 14 15 Particulars Amount 16 Cost of Building 17 Expenditure in 2018 Interest Capitalized in 2018 Expenditure in 2019 3,000,000 18 205,000 1,755,000 271,980 5,231,980 19 20 Interest Capitalized in 2019 Total Cost of Building 21 22