On January 1, 2016, the Mason Manufacturing Company began construction of a building to be used as its office headquarters. The building was completed on September 30, 2017.
Expenditures on the project were as follows:
January 1, 2016 $ 1,230,000 March 1, 2016 720,000 June 30, 2016 380,000 October 1, 2016 670,000 January 31, 2017 990,000 April 30, 2017 1,305,000 August 31, 2017 2,340,000
On January 1, 2016, the company obtained a $3 million construction loan with a 12% interest rate. The loan was outstanding all of 2016 and 2017. The companyâs other interest-bearing debt included two long-term notes of $5,600,000 and $7,600,000 with interest rates of 8% and 10%, respectively. Both notes were outstanding during all of 2016 and 2017. Interest is paid annually on all debt. The companyâs fiscal year-end is December 31. Assume the $3 million loan is not specifically tied to construction of the building.
Required:
1. Calculate the amount of interest that Mason should capitalize in 2016 and 2017 using the weighted-average method. (Do not round intermediate calculations. Round your answers to the nearest whole dollars.)
2. What is the total cost of the building? (Do not round intermediate calculations. Round your answer to the nearest whole dollar.)
3. Calculate the amount of interest expense that will appear in the 2016 and 2017 income statements. (Do not round intermediate calculations. Round your answers to the nearest whole dollars.)
On January 1, 2016, the Mason Manufacturing Company began construction of a building to be used as its office headquarters. The building was completed on September 30, 2017. |
Expenditures on the project were as follows: |
January 1, 2016 | $ | 1,230,000 | |
March 1, 2016 | 720,000 | ||
June 30, 2016 | 380,000 | ||
October 1, 2016 | 670,000 | ||
January 31, 2017 | 990,000 | ||
April 30, 2017 | 1,305,000 | ||
August 31, 2017 | 2,340,000 | ||
On January 1, 2016, the company obtained a $3 million construction loan with a 12% interest rate. The loan was outstanding all of 2016 and 2017. The companyâs other interest-bearing debt included two long-term notes of $5,600,000 and $7,600,000 with interest rates of 8% and 10%, respectively. Both notes were outstanding during all of 2016 and 2017. Interest is paid annually on all debt. The companyâs fiscal year-end is December 31. Assume the $3 million loan is not specifically tied to construction of the building. |
Required: |
1. | Calculate the amount of interest that Mason should capitalize in 2016 and 2017 using the weighted-average method. (Do not round intermediate calculations. Round your answers to the nearest whole dollars.) |
2. | What is the total cost of the building? (Do not round intermediate calculations. Round your answer to the nearest whole dollar.) |
3. | Calculate the amount of interest expense that will appear in the 2016 and 2017 income statements. (Do not round intermediate calculations. Round your answers to the nearest whole dollars.) |