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? Calculate the amount of interest expense that will appear in the 2021 and 2022 income statements.
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? Calculate the amount of interest expense that will appear in the 2021 and 2022 income statements.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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 | $ | 1,000,000 | |
| 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?
- Calculate the amount of interest expense that will appear in the 2021 and 2022 income statements.
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