Reference no: EM131268099
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 $ 1,280,000 March 1, 2016 720,000 June 30, 2016 920,000 October 1, 2016 720,000 January 31, 2017 288,000 April 30, 2017 621,000 August 31, 2017 918,000 On January 1, 2016, the company obtained a $3,200,000 construction loan with a 15% 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 11% and 13%, 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.
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