Problem 10-10 (Algo) Interest capitalization; weighted-average method [LO10-7] On January 1, 2021, the company obtained a $3 million loan with a 11% interest rate. 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, 2021 January 31, 2022 April 30, 2022 August 31, 2022 $ 1,110,000 930,000 250,000 710,000 765,000 1,080,000 1,890,000 On January 1, 2021, the company obtained a $3 million construction loan with a 11% interest rate. Assume the $3 million loan is not specifically tied to construction of the building. The loan was outstanding all of 2021 and 2022. The company's other interest-bearing debt included two long-term notes of $5,100,000 and $7,100,000 with interest rates of 7% and 9%, 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 weighted-average 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.
Problem 10-10 (Algo) Interest capitalization; weighted-average method [LO10-7] On January 1, 2021, the company obtained a $3 million loan with a 11% interest rate. 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, 2021 January 31, 2022 April 30, 2022 August 31, 2022 $ 1,110,000 930,000 250,000 710,000 765,000 1,080,000 1,890,000 On January 1, 2021, the company obtained a $3 million construction loan with a 11% interest rate. Assume the $3 million loan is not specifically tied to construction of the building. The loan was outstanding all of 2021 and 2022. The company's other interest-bearing debt included two long-term notes of $5,100,000 and $7,100,000 with interest rates of 7% and 9%, 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 weighted-average 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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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![Problem 10-10 (Algo) Interest capitalization; weighted-average method [LO10-7]
On January 1, 2021, the company obtained a $3 million loan with a 11% interest rate. 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, 2021
January 31, 2022
April 30, 2022
August 31, 2022
$ 1,110,000
930,000
250,000
710,000
765,000
1,080,000
1,890,000
On January 1, 2021, the company obtained a $3 million construction loan with a 11% interest rate. Assume the $3 million
loan is not specifically tied to construction of the building. The loan was outstanding all of 2021 and 2022. The company's
other interest-bearing debt included two long-term notes of $5,100,000 and $7,100,000 with interest rates of 7% and 9%,
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 weighted-average 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.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F58f64e99-b3fb-491d-a9f5-7a66a1bd819c%2Fc8600c60-6e2b-4437-80d1-eaf0f570ad1c%2Fj0iipio_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Problem 10-10 (Algo) Interest capitalization; weighted-average method [LO10-7]
On January 1, 2021, the company obtained a $3 million loan with a 11% interest rate. 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, 2021
January 31, 2022
April 30, 2022
August 31, 2022
$ 1,110,000
930,000
250,000
710,000
765,000
1,080,000
1,890,000
On January 1, 2021, the company obtained a $3 million construction loan with a 11% interest rate. Assume the $3 million
loan is not specifically tied to construction of the building. The loan was outstanding all of 2021 and 2022. The company's
other interest-bearing debt included two long-term notes of $5,100,000 and $7,100,000 with interest rates of 7% and 9%,
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 weighted-average 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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