In: Accounting
On January 1, 2021, the company obtained a $3 million loan with a 12% interest rate. The building was completed on September 30, 2022. Expenditures on the project were as follows:
January 1, 2021 | $ | 1,240,000 | |
March 1, 2021 | 660,000 | ||
June 30, 2021 | 450,000 | ||
October 1, 2021 | 650,000 | ||
January 31, 2022 | 900,000 | ||
April 30, 2022 | 1,215,000 | ||
August 31, 2022 | 2,160,000 | ||
On January 1, 2021, 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 2021 and 2022. The company’s other
interest-bearing debt included two long-term notes of $5,400,000
and $7,400,000 with interest rates of 6% and 8%, respectively. Both
notes were outstanding during all of 2021 and 2022. 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 2021 and 2022 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 2021 and 2022 income statements.