On January 1, 2024, the Mason Manufacturing Company began construction of a building to be used as its office headquarters. The building was completed on September 30, 2025. Expenditures on the project were as follows: January 1, 2024 $ 1,000,000 March 1, 2024 600,000 June 30, 2024 800,000 October 1, 2024 600,000 January 31, 2025 270,000 April 30, 2025 585,000 August 31, 2025 900,000 On January 1, 2024, the company obtained a $3 million construction loan with a 10% interest rate. Assume the $3 million loan is not specifically tied to construction of the building. The loan was outstanding all of 2024 and 2025. 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 2024 and 2025. Interest is paid annually on all debt. The company’s fiscal year-end is December 31. Required: Using the weighted-average interest method, answer the following questions: Calculate the amount of interest that Mason should capitalize in 2024 and 2025 using the weighted-average method. What is the total cost of the building? Calculate the amount of interest expense that will appear in the 2024 and 2025 income statements
On January 1, 2024, the Mason Manufacturing Company began construction of a building to be used as its office headquarters. The building was completed on September 30, 2025. Expenditures on the project were as follows: January 1, 2024 $ 1,000,000 March 1, 2024 600,000 June 30, 2024 800,000 October 1, 2024 600,000 January 31, 2025 270,000 April 30, 2025 585,000 August 31, 2025 900,000 On January 1, 2024, the company obtained a $3 million construction loan with a 10% interest rate. Assume the $3 million loan is not specifically tied to construction of the building. The loan was outstanding all of 2024 and 2025. 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 2024 and 2025. Interest is paid annually on all debt. The company’s fiscal year-end is December 31. Required: Using the weighted-average interest method, answer the following questions: Calculate the amount of interest that Mason should capitalize in 2024 and 2025 using the weighted-average method. What is the total cost of the building? Calculate the amount of interest expense that will appear in the 2024 and 2025 income statements
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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On January 1, 2024, the Mason Manufacturing Company began construction of a building to be used as its office headquarters. The building was completed on September 30, 2025. Expenditures on the project were as follows:
| January 1, 2024 | $ 1,000,000 |
|---|---|
| March 1, 2024 | 600,000 |
| June 30, 2024 | 800,000 |
| October 1, 2024 | 600,000 |
| January 31, 2025 | 270,000 |
| April 30, 2025 | 585,000 |
| August 31, 2025 | 900,000 |
On January 1, 2024, the company obtained a $3 million construction loan with a 10% interest rate. Assume the $3 million loan is not specifically tied to construction of the building. The loan was outstanding all of 2024 and 2025. 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 2024 and 2025. Interest is paid annually on all debt. The company’s fiscal year-end is December 31.
Required:
Using the weighted-average interest method, answer the following questions:
- Calculate the amount of interest that Mason should capitalize in 2024 and 2025 using the weighted-average method.
- What is the total cost of the building?
- Calculate the amount of interest expense that will appear in the 2024 and 2025 income statements
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