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sweet-ann [11.9K]
3 years ago
10

On January 1, 2021, the Mason Manufacturing Company began construction of a building to be used as its office headquarters. The

building was completed on September 30, 2022. Expenditures on the project were as follows:
January 1, 2021

$

1,000,000

March 1, 2021

600,000

June 30, 2021

800,000

October 1, 2021

600,000

January 31, 2022

270,000

April 30, 2022

585,000

August 31, 2022

900,000

On January 1, 2021, the company obtained a $3 million construction loan with a 10% interest rate. The loan was outstanding all of 2021 and 2022. 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 2021 and 2022. Interest is paid annually on all debt. The company’s fiscal year-end is December 31.

Required:

Calculate the amount of interest that Mason should capitalize in 2021 and 2022 using the specific interest method.
What is the total cost of the building?

Business
1 answer:
Setler [38]3 years ago
3 0

Answer:

1. In 2021, Capitalized interest = $205,000

2. In 2022, Capitalized interest = $3,870,000

3. Total cost = $5,231,980

Explanation:

See the attached file for the  calculation

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