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

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:

January 1, 2018 $ 1,820,000

March 1, 2018 1,440,000

June 30, 2018 1,640,000

October 1, 2018 1,440,000

January 31, 2019 396,000

April 30, 2019 729,000

August 31, 2019 1,026,000

On January 1, 2018, the company obtained a $4,400,000 construction loan with a 14% interest rate. The loan was outstanding all of 2018 and 2019. The company’s other interest-bearing debt included two long-term notes of $2,000,000 and $8,000,000 with interest rates of 10% and 12%, 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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