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.
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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