FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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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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