On January 1, 2016, the Highlands Company began construction on a new manufacturing facility for its own use. The building was completed in 2017. The company borrowed $1,500,000 at 8% on January 1 to help finance the construction. In addition to the construction loan, Highlands had the following debt outstanding throughout 2016: Construction expenditures incurred during 2016 were as follows: Calculate the amount of interest capitalized for 2016 using the specific interest method. Show transcribed image text On January 1, 2016, the Highlands Company began construction on a new manufacturing facility for its own use. The building was completed in 2017. The company borrowed $1,500,000 at 8% on January 1 to help finance the construction. In addition to the construction loan, Highlands had the following debt outstanding throughout 2016: Construction expenditures incurred during 2016 were as follows: Calculate the amount of interest capitalized for 2016 using the specific interest method.
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Interest During Construction
Matrix Inc. borrowed $1,000,000 at 8% to finance theconstruction of a new building for its own use. Construction beganon January 1, 2016, and was completed on October 31, 2016.Expenditures related to this building were:
January 1 | $252,000 | (includes cost of purchasing land of $150,000) |
May 1 | 310,000 | |
July 1 | 420,000 | |
October 31 | 276,000 |
In addition, Matrix had additional debt (unrelated to theconstruction) of $500,000 at 9% and $800,000 at 10%. All debt wasoutstanding for the entire year.
Required:
1. Compute the amount of interest capitalized related to theconstruction of the building.
2. If the expenditures are assumed to have been incurred evenlythroughout the year:
a. Compute weighted average accumulated expenditures.
b. Compute the amount of interest capitalized on the building.
4. A company constructs a building for its own use. Construction began on January 1 and ended on December 30. The expenditures for construction were as follows: January 1, $580,000; March 31, $680,000; June 30, $480,000; October 30, $840,000. To help finance construction, the company arranged a 7% construction loan on January 1 for $860,000. The companyâs other borrowings, outstanding for the whole year, consisted of a $4 million loan and a $6 million note with interest rates of 8% and 6%, respectively.
Assuming the company uses the specific interest method, calculate the amount of interest capitalized for the year. (Do not round intermediate calculations. Round your percentage answers to 2 decimal places (i.e. 0.1234 should be entered as 12.34%).)
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5. A company constructs a building for its own use. Construction began on January 1 and ended on December 30. The expenditures for construction were as follows: January 1, $510,000; March 31, $610,000; June 30, $410,000; October 30, $630,000. To help finance construction, the company arranged a 8% construction loan on January 1 for $720,000. The companyâs other borrowings, outstanding for the whole year, consisted of a $2 million loan and a $4 million note with interest rates of 10% and 7%, respectively.
Assuming the company uses the weighted-average method, calculate the amount of interest capitalized for the year. (Do not round intermediate calculations. Round your percentage answer to 2 decimal places (i.e. 0.1234 should be entered as 12.34%).)
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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 | $ | 1,230,000 | |
March 1, 2016 | 720,000 | ||
June 30, 2016 | 380,000 | ||
October 1, 2016 | 670,000 | ||
January 31, 2017 | 990,000 | ||
April 30, 2017 | 1,305,000 | ||
August 31, 2017 | 2,340,000 | ||
On January 1, 2016, the company obtained a $3 million construction loan with a 12% interest rate. The loan was outstanding all of 2016 and 2017. The companyâs other interest-bearing debt included two long-term notes of $5,600,000 and $7,600,000 with interest rates of 8% and 10%, respectively. Both notes were outstanding during all of 2016 and 2017. Interest is paid annually on all debt. The companyâs fiscal year-end is December 31. Assume the $3 million loan is not specifically tied to construction of the building. |
Required: |
1. | Calculate the amount of interest that Mason should capitalize in 2016 and 2017 using the weighted-average method. (Do not round intermediate calculations. Round your answers to the nearest whole dollars.) |
2. | What is the total cost of the building? (Do not round intermediate calculations. Round your answer to the nearest whole dollar.) |
3. | Calculate the amount of interest expense that will appear in the 2016 and 2017 income statements. (Do not round intermediate calculations. Round your answers to the nearest whole dollars.) |