Question

On January 1, 2016, the Mason Manufacturing Company began construction of a building to be used...

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

$

1,000,000

  March 1, 2016

800,000

  June 30, 2016

1,500,000

  October 1, 2016

1,000,000

  January 31, 2017

300,000

  April 30, 2017

600,000

  August 31, 2017

900,000

On January 1, 2016, the company obtained a $8.000,000 construction loan with a 12% interest rate. The loan was outstanding all of 2016 and 2017. The company’s fiscal year-end is December 31.

  1. Calculate the amount of interest capitalized for 2016 and 2017.
  2. What is the total cost of the building?

Date

Expenditure

Weight

Average

Accumulated expenditure

Average

Interest Rate

Capitalized Interest

Average accumulated expenditures

x

%

X  /12

=

Date

Expenditure

Weight

Average

January 1, 2017 (incurred in 2016+ capitalized Interest for 2016)

x

=

Accumulated expenditure

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