1. Purchased a parcel of land on March 1, 2013 for $650,000 by paying $425,000 i

Question

1. Purchased a parcel of land on March 1, 2013 for $650,000 by paying $425,000 in cash and

signing a short-term note payable with the seller for $225,000. You must repay the $225,000 in

exactly one year on March 1, 2014. You agree to pay the seller 4.5 percent interest (annual

rate) on a quarterly basis (June 1, September 1, December 1, 2013, and March 1, 2014).

[Adjusting Entry Required]

2. Leased additional warehouse space from Leasing Solutions for two years on June 1st. $92,000

cash was paid on this date which covers the full rental fee for the two years.

[Adjusting Entry Required]

3. Purchased a truck for $140,000 cash on the 1st of January. The truck will be depreciated over

an 8 year period. You decide to use the 200% declining-balance depreciation method because it

is determined that the truck will be more productive when it is newer. The truck has an

estimated salvage value of $8,000

[Adjusting Entry Required]

Explanation / Answer

Assumption : Books of accounts are closed on 31st dec of the year.

31-Dec Adjusting Entry 1 Interest accrued 843.75 To interest payable a/c 843.75 ($225,000*4.5%*1/12) 2 Advance lease rentals 65166.667 To leasing solutions 65166.667 ($92,000/24*17) 3 Depreciation 26400 To Truck 26400 ($140,000-$8,000)*20%=$26,400 Profit & loss a/c 26400 To depreciation 26400 4 Long term loan 38000 Accumulated Interest on loan 4000 To cash 42000 Profit & loss a/c 4000 To Accumulated Interest on loan 4000

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