On January 1,2018, the Mason Manufacturing Company began construction of a build
ID: 2598750 • Letter: O
Question
On January 1,2018, the Mason Manufacturing Company began construction of a building to be used as ts office hea building was completed on September 30, 2019. of a building to be used as its office headquarters. The Expenditures on the project were as follows: January 1, 2018 March 1, 2018 anuary 31, 2019 Apri1 38, 2019 August 31, 2819 1,748,00e 1,948,00e 1,740,00e 441,000 774,000 1,871,000 On January 1, 2018, the company obtained a $4,900,000 construction loan with a 12% interest rate. The loan was outstanding all of 2018 and 2019. The company's other interest-bearing debt included two long-term notes of $2,000,000 and $8,000,000 with interes rates of 8% and 10%, respectively. Both notes were outstanding during all of 2018 and 2019 company's fiscal year-end is December 31 ces Interest is paid annually on all debt. The Required: Calculate the amount of interest that Mason should capitalize in 2018 and 2019 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 2018 and 2019 income statements Complete this question by entering your answers in the tabs belovw Calculate the amount of interest that Mason should capitalize in 2018 and 2019 using the specific interest method and interest expense that will appear in the 2018 and 2019 income statements. (Enter your answers in dollars.) 2019 Req 2>Explanation / Answer
Requirement 1
2018:
Expenditures for 2018:
January 1, 2018 $2,020,000 x 12/12 = $2,020,000
March 1, 2018 1,740,000 x 10/12 = 1,450,000
June 30, 2018 1,940,000 x 6/12 = 970,000
October 1, 2018 1,740,000 x 3/12 = 435,000
Accumulated expenditures
(before interest) - $7,440,000
Average accumulated expenditures - $4,875,000
Interest capitalized:
$4,875,000 x 12% = $585,000 = Interest capitalized in 2018
2019:
January 1, 2019
($7,440,000 + 585,000) $8,025,000 x 9/9 = $8,025,000
January 31, 2019 441,000 x 8/9 = 392,000
April 30, 2019 774,000 x 5/9 = 430,000
August 31, 2019 1,071,000 x 1/9 = 119,000
Accumulated expenditures
(before interest) - $10,311,000
Average accumulated expenditures - $8,966,000
Interest capitalized:
$8,966,000
- 4,900,000 x 12.0% x 9/12 = $441,000
4,066,000 x 9.6%* x 9/12 = 292,752
$733,752 = Interest capitalized in 2019
* Weighted-average rate of all other debt:
$ 2,000,000 x 8% = $160,000 $960,000
8,000,000 x 10% = 800,000 = 9.6%
$10,000,000 $960,000 $10,000,000
Requirement 2
Accumulated expenditures 9/30/19
before interest capitalization (above) $10,311,000
2019 interest capitalized (above) 733,752
Total cost of building $11,044,752
Requirement 3
2018
$4,900,000 x 12% = $ 588,000
2,000,000 x 8% = 160,000
8,000,000 x 10% = 800,000
Total interest incurred 1,548,000
Less: Interest capitalized (585,000)
2018 interest expense $ 963,000
2019
Total interest incurred $1,548,000
Less: Interest capitalized (733,752)
2019 interest expense $ 814,248
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