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 March 1, 2021 June 30, 2021 October 1, 2021 January 31, 2022 April 30, 2022 August 31, 2022 $2,050,000 1,800,000 2,000,000 1,800,000 450,000 783,000 1,080,000 On January 1, 2021, the company obtained a $5,000,000 construction loan with a 9% interest rate. The loan was outstanding all of 2021 and 2022. 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 2021 and 2022. Interest is paid annually on all debt. The company's fiscal year-end is December 31. 1. What is the amount of interest to be capitalized in 2021, and 2022? 2. What is the amount of interest expense that will appear in the 2021, and 2022 income statements? 3. What is the total cost of the building?
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 March 1, 2021 June 30, 2021 October 1, 2021 January 31, 2022 April 30, 2022 August 31, 2022 $2,050,000 1,800,000 2,000,000 1,800,000 450,000 783,000 1,080,000 On January 1, 2021, the company obtained a $5,000,000 construction loan with a 9% interest rate. The loan was outstanding all of 2021 and 2022. 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 2021 and 2022. Interest is paid annually on all debt. The company's fiscal year-end is December 31. 1. What is the amount of interest to be capitalized in 2021, and 2022? 2. What is the amount of interest expense that will appear in the 2021, and 2022 income statements? 3. What is the total cost of the building?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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What are the answers to the three questions listed?
Transcribed Image Text:## Mason Manufacturing Company Building Construction
### Project Overview
On January 1, 2021, Mason Manufacturing Company initiated the construction of a new building to serve as its office headquarters. The project reached completion on September 30, 2022. The expenditures for the project were as follows:
- **January 1, 2021:** $2,050,000
- **March 1, 2021:** $1,800,000
- **June 30, 2021:** $2,000,000
- **October 1, 2021:** $1,800,000
- **January 31, 2022:** $450,000
- **April 30, 2022:** $783,000
- **August 31, 2022:** $1,080,000
### Financial Arrangements
On January 1, 2021, the company secured a construction loan of $5,000,000 at a 9% interest rate. This loan was active throughout 2021 and 2022. The company also had other interest-bearing debts, consisting of two long-term notes:
- $6,000,000 note at 5% interest
- $9,000,000 note at 8% interest
Both notes were outstanding during 2021 and 2022, with interest paid annually on all debt. The company’s fiscal year ends on December 31.
### Questions
1. **What is the amount of interest to be capitalized in 2021 and 2022?**
2. **What is the amount of interest expense that will appear in the 2021 and 2022 income statements?**
3. **What is the total cost of the building?**
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how did you get these numbers ?
| Year 2022: Weighted-Average accumulated expenditure | |||
| Date | Amount | Capitalization period | Weighted Average Accumulated Expenditures |
| 1-Jan-22 | $8,100,000 | 9/9 | $8,100,000 |
| 31-Jan-22 | $450,000 | 8/9 | $400,000 |
| 30-Apr-22 | $783,000 | 5/9 | $435,000 |
| 31-Aug-22 | $1,080,000 | 1/9 | $120,000 |
| Total | $10,413,000 | $9,055,000 |
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