n 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 $ 1,910,000   March 1, 2021   1,620,000   June 30, 2021   1,820,000   October 1, 2021   1,620,000   January 31, 2022   423,000   April 30, 2022   756,000   August 31, 2022   1,053,000     On January 1, 2021, the company obtained a $4,700,000 construction loan with a 12% interest rate. The loan was outstanding all of 2021 and 2022. The company’s other interest-bearing debt included two long-term notes of $6,000,000 and $9,000,000 with interest rates of 8% and 10%, 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.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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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 $ 1,910,000  
March 1, 2021   1,620,000  
June 30, 2021   1,820,000  
October 1, 2021   1,620,000  
January 31, 2022   423,000  
April 30, 2022   756,000  
August 31, 2022   1,053,000  
 


On January 1, 2021, the company obtained a $4,700,000 construction loan with a 12% interest rate. The loan was outstanding all of 2021 and 2022. The company’s other interest-bearing debt included two long-term notes of $6,000,000 and $9,000,000 with interest rates of 8% and 10%, 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 specific interest 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.

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