[This is a variation of the previous problem, modified to focus on the weighted-average interest method.]
Required:
Refer to the facts in Problem 10–9 but now assume the $3 million loan is not specifically tied to construction of the building. Answer the following questions:
1. Calculate the amount of interest that Mason should capitalize in 2021 and 2022 using the weighted-average method.
2. What is the total cost of the building?
3. Calculate the amount of interest expense that will appear in the 2021 and 2022 income statements.
Problem 10–9
On January 1, 2021, the Mason Manufacturing Company began construction of a building to be used as its office headquarters. The building was completed on September 30, 2022. Expenditures on the project were as follows:
January 1, 2021 ………………….$ 1,000,000
March 1, 2021 …………………………600,000
June 30, 2021 ………………………….800,000
October 1, 2021 ……………………..600,000
January 31, 2022 ……………………270,000
April 30, 2022 ……………………….585,000
August 31, 2022 …………………..900,000
On January 1, 2021, the company obtained a $3 million construction loan with a 10% interest rate. The loan was outstanding all of 2021 and 2022. The company’s other interest-bearing debt included two long-term notes of $4,000,000 and $6,000,000 with interest rates of 6% and 8%, 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.
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