On January 1, 2021, the company obtained a $3 million loan with a 10% interest rate. The building was completed on September 30, 2022. Expenditures on the project were as follows:         January 1, 2021 $ 1,300,000   March 1, 2021   750,000   June 30, 2021   300,000   October 1, 2021   650,000   January 31, 2022   495,000   April 30, 2022   810,000   August 31, 2022   1,350,000      On January 1, 2021, 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 2021 and 2022. The company’s other interest-bearing debt included two long-term notes of $4,500,000 and $6,500,000 with interest rates of 5% and 7%, 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. Required:1. Calculate the amount of interest that Mason should capitalize in 2021 and 2022 using the weighted-average method.2. What is the total cost of the building?3. Calculate the amount of interest expense that will appear in the 2021 and 2022 income statements.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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On January 1, 2021, the company obtained a $3 million loan with a 10% interest rate. The building was completed on September 30, 2022. Expenditures on the project were as follows:

       
January 1, 2021 $ 1,300,000  
March 1, 2021   750,000  
June 30, 2021   300,000  
October 1, 2021   650,000  
January 31, 2022   495,000  
April 30, 2022   810,000  
August 31, 2022   1,350,000  
 

 
On January 1, 2021, 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 2021 and 2022. The company’s other interest-bearing debt included two long-term notes of $4,500,000 and $6,500,000 with interest rates of 5% and 7%, 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.
 
Required:
1. Calculate the amount of interest that Mason should capitalize in 2021 and 2022 using the weighted-average method.
2. What is the total cost of the building?
3. Calculate the amount of interest expense that will appear in the 2021 and 2022 income statements.

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