Reference no: EM132936275
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 $1,090,000
March 1, 2021 780,000
June 30, 2021 980,000
October 1, 2021 780,000
January 31, 2022 297,000
April 30, 2022 630,000
August 31, 2022 927,000
On January 1, 2021, the company obtained a $3,300,000 construction loan with a 16% interest rate. The loan was outstanding all of 2021 and 2022. The company's other interest-bearing debt included two long-term notes of $2,000,000 and $8,000,000 with interest rates of 10% and 12%, 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.
Problem 1: Calculate the amount of interest that Mason should capitalize in 2021 and 2022 using the specific interest method.
Problem 2: Calculate the amount of interest expense that will appear in the 2021 and 2022 income statements.
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