Calculate amount of interest that mason should capitalize

Reference no: EM133416722

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 $ 1,080,000
March 1, 2024 900,000
June 30, 2024 320,000
October 1, 2024 700,000
January 31, 2025 720,000
April 30, 2025 1,035,000
August 31, 2025 1,800,000

On January 1, 2024, the company obtained a $3 million construction loan with a 10% interest rate. Assume the $3 million loan is not specifically tied to construction of the building. The loan was outstanding all of 2024 and 2025. The company's other interest-bearing debt included two long-term notes of $5,000,000 and $7,000,000 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:

Using the weighted-average interest method, answer the following questions:

Question 1: Calculate the amount of interest that Mason should capitalize in 2024 and 2025 using the weighted-average method.

Question 2: What is the total cost of the building?

Question 3: Calculate the amount of interest expense that will appear in the 2024 and 2025 income statements.

Reference no: EM133416722

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