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 $ 2,050,000 March 1, 2024 1,800,000 June 30, 2024 2,000,000 October 1, 2024 1,800,000 January 31, 2025 450,000 April 30, 2025 783,000 August 31, 2025 1,080,000 On January 1, 2024, the company obtained a $5,000,000 construction loan with a 9% interest rate. The loan was outstanding all of 2024 and 2025. The company’s other interest-bearing debt included two long-term notes of $6,000,000 and $9,000,000 with interest rates of 5% 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: Calculate the amount of interest that Mason should capitalize in 2024 and 2025 using the specific interest 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 $ 2,050,000 March 1, 2024 1,800,000 June 30, 2024 2,000,000 October 1, 2024 1,800,000 January 31, 2025 450,000 April 30, 2025 783,000 August 31, 2025 1,080,000 On January 1, 2024, the company obtained a $5,000,000 construction loan with a 9% interest rate. The loan was outstanding all of 2024 and 2025. The company’s other interest-bearing debt included two long-term notes of $6,000,000 and $9,000,000 with interest rates of 5% 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: Calculate the amount of interest that Mason should capitalize in 2024 and 2025 using the specific interest 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 | $ 2,050,000 |
|---|---|
| March 1, 2024 | 1,800,000 |
| June 30, 2024 | 2,000,000 |
| October 1, 2024 | 1,800,000 |
| January 31, 2025 | 450,000 |
| April 30, 2025 | 783,000 |
| August 31, 2025 | 1,080,000 |
On January 1, 2024, the company obtained a $5,000,000 construction loan with a 9% interest rate. The loan was outstanding all of 2024 and 2025. The company’s other interest-bearing debt included two long-term notes of $6,000,000 and $9,000,000 with interest rates of 5% 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:
- Calculate the amount of interest that Mason should capitalize in 2024 and 2025 using the specific interest 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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