Reference no: EM13668993
On January 1, 2016, the Mason Manufacturing Company began construction of a building to be used as its office headquarters. The building was completed on September 30, 2017.
Expenditures on the project were as follows:
January 1, 2016 $ 1,200,000
March 1, 2016 900,000
June 30, 2016 1,100,000
October 1, 2016 900,000
January 31, 2017 315,000
April 30, 2017 648,000
August 31, 2017 945,000
On January 1, 2016, the company obtained a $3,500,000 construction loan with a 12% interest rate. The loan was outstanding all of 2016 and 2017. The company's other interest-bearing debt included two long-term notes of $3,000,000 and $7,000,000 with interest rates of 8% and 10%, respectively. Both notes were outstanding during all of 2016 and 2017. Interest is paid annually on all debt. The company's fiscal year-end is December 31.
Required:
1. Calculate the amount of interest that Mason should capitalize in 2016 and 2017 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 2016 and 2017 income statements.