Question

On January 1, 2011, the Mason Manufacturing Company began construction of a building to be used as its office headquarters. The building was completed on September 30, 2012.

Expenditures on the project were as follows:
January 1, 2011 ....... $1,000,000
March 1, 2011 .......... 600,000
June 30, 2011 ......... 800,000
October 1, 2011 ........ 600,000
January 31, 2012 ......... 270,000
April 30, 2012 .......... 585,000
August 31, 2012 ........ 900,000

On January 1, 2011, the company obtained a $3 million construction loan with a 10% interest rate. The loan was outstanding all of 2011 and 2012. 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 2011 and 2012. 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 2011 and 2012 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 2011 and 2012 income statements.



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  • CreatedJuly 02, 2013
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