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 March 1, 2021 June 30, 2021 October 1, 2821 January 31, 2822 April 30, 2822 August 31, 2022 $1,870,000 1,560,000 1,760,000 1,560,000 414,000 747,800 1,044,000 On January 1, 2021, the company obtained a $4,600,000 construction loan with a 15% interest rate. The loan was outstanding all of 2021 and 2022. The company's other interest-bearing debt included two long-term notes of $2,000,000 and $8,000,000 with interest rates of 8% and 12%, 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. Complete this question by entering your answers in the tabs below.
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 March 1, 2021 June 30, 2021 October 1, 2821 January 31, 2822 April 30, 2822 August 31, 2022 $1,870,000 1,560,000 1,760,000 1,560,000 414,000 747,800 1,044,000 On January 1, 2021, the company obtained a $4,600,000 construction loan with a 15% interest rate. The loan was outstanding all of 2021 and 2022. The company's other interest-bearing debt included two long-term notes of $2,000,000 and $8,000,000 with interest rates of 8% and 12%, 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. Complete this question by entering your answers in the tabs below.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Transcribed Image Text: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
March 1, 2021
BY
June 30, 2021
October 1, 2021
January 31, 2022
April 30, 2022
August 31, 2022
On January 1, 2021, the company obtained a $4,600,000 construction loan with a 15% interest rate. The loan was outstanding all of
2021 and 2022. The company's other interest-bearing debt included two long-term notes of $2,000,000 and $8,000,000 with interest
rates of 8% and 12%, 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.
$1,870,000
1,560,000
1,760,000
1,560,000
414,000
747,000
1,044,000
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.
Complete this question by entering your answers in the tabs below.
Req 1 and 3
Calculate the amount of interest that Mason should capitalize in 2021 and 2022 using the specific interest method and
interest expense that will appear in the 2021 and 2022 income statements. (Do not round intermediate calculations.)
2022
Interest capitalized
Interest expense
Req 2
2021
< Req 1 and 3
Req 2 >
Transcribed Image Text: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.
Complete this question by entering your answers in the tabs below.
Req 1 and 3
Req 2
What is the total cost of the building? (Do not round intermediate calculations.)
Total cost of building
< Req 1 and 3
Req 2 >
Expert Solution
Step 1
A company identifies borrowings—or portions of borrowings—that were particularly used to fund an eligible asset when using the specific interest technique. The amount to be capitalized is determined by multiplying the average cumulative costs for creating the asset by the interest rate of the particular loan.
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