Calculate the amount of interest that Mason should capitalize

What is the specific interest method?

The specific interest method is a way of calculating the interest expense incurred by a business that borrows money specifically for the purpose of financing the construction of a long-term asset.

How does the specific interest method work?

The specific interest method involves capitalizing the interest expense associated with the borrowed funds as part of the cost of the asset being constructed. This means that the interest expense is added to the cost of the asset and is then depreciated over the useful life of the asset.

When a business incurs interest expense on funds borrowed to finance the construction of a long-term asset, the interest expense is first capitalized as part of the cost of the asset. This is done to more accurately reflect the total cost of the asset and to match the interest expense with the revenue generated by the asset over its useful life.

By capitalizing the interest expense, the business is able to spread out the cost of the interest over the useful life of the asset, rather than expensing it all in the period in which it was incurred. This can help to improve the accuracy of the financial statements and provide a more realistic picture of the business's financial performance.

The specific interest method is just one of the many ways that businesses can account for interest expense incurred in relation to the construction of long-term assets. By carefully considering the various methods available and choosing the one that best suits their needs, businesses can ensure that they are accurately reflecting the financial impact of their borrowing activities.