Problem 10-10 Interest capitalization; weighted-average method [LO10-7]

On January 1, 2013, the Mason Manufacturing Company began construction of a building to be used as its office headquarters. The building was completed on September 30, 2014.

Expenditures on the project were as follows:

January 1, 2013	$	1,200,000
March 1, 2013		690,000
June 30, 2013		450,000
October 1, 2013		660,000
January 31, 2014		945,000
April 30, 2014		1,260,000
August 31, 2014		2,250,000

On January 1, 2013, the company obtained a $3 million construction loan with a 12% interest rate. The loan was outstanding all of 2013 and 2014. The companys other interest-bearing debt included two long-term notes of $5,500,000 and $7,500,000 with interest rates of 7% and 9%, respectively. Both notes were outstanding during all of 2013 and 2014. Interest is paid annually on all debt. The companys fiscal year-end is December 31.

Required:

1.	Calculate the amount of interest that Mason should capitalize in 2013 and 2014 using the weighted-average method. (Round interest rate to 2 decimal places. Enter your answers in whole dollars.)

2.	What is the total cost of the building? (Round interest rate to 2 decimal places. Enter your answers in whole dollars.)

3.	Calculate the amount of interest expense that will appear in the 2013 and 2014 income statements.(Round interest rate to 2 decimal places. Enter your answers in whole dollars.)