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On January 1, 2018, the Mason Manufacturing Company began construction of a building to be used as its office headquarters. The building was...
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Question

On January 1, 2018, the Mason Manufacturing Company began construction of a building to be used as its office

headquarters. The building was completed on September 30, 2019.


Expenditures on the project were as follows:

1-Jan-18 = $1,850,000

1-Mar-18 = $1,500,000

30-Jun-18 = $1,700,000

1-Oct-18 = $1,500,000

31-Jan-19 = $405,000

30-Apr-19 = $738,000

31-Aug-19 = $1,035,000


On January 1, 2018, the company obtained a $4,500,000 construction loan with a 12% interest rate. The loan was outstanding all of 2018 and 2019. The company's other interest-bearing debt included two long-term notes of $6,000,000 and $9,000,000 with interest rates of 8% and 10%, respectively. Both notes were outstanding during all of 2018 and 2019. 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 2018 and 2019 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 2018 and 2019 income statements.

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