On June 30, Collins Management Company purchased land for $400,000 and a buildin
ID: 2418083 • Letter: O
Question
On June 30, Collins Management Company purchased land for $400,000 and a building for $560,000, paying $360,000 cash and issuing a 5% note for the balance, secured by a mortgage on the property. The terms of the note provide for 20 semiannual payments of $30,000 on the principal plus the interest accrued from the date of the preceding payment. Journalize the entry to record (a) the transaction on June 30, (b) the payment of the first installment on December 31, and (c) the payment of the second installment the following June 30. Assume a 360-day year. Refer to the Chart of Accounts for exact wording of account titles.
Explanation / Answer
Journal Entries
Date
Accounts Titles and Explanations
Debit
Credit
June. 30
Land
$ 400,000.00
Building
$ 560,000.00
Cash
$ 360,000.00
5% Note Payable (400000+560000-360000)
$ 600,000.00
(Being Land and Building purchased)
Dec. 31
Interest Expense (For 6 months July to dec)=600000*5%*6/12 =
$ 15,000.00
5% Note Payable
$ 30,000.00
Cash (15000+30000)
$ 45,000.00
(Being installment paid)
Dec. 31
Interest Expense (For 6 months Jan to June)=(600000-30000)*5%*6/12 =
$ 14,250.00
5% Note Payable
$ 30,000.00
Cash (14250+30000)
$ 44,250.00
(Being installment paid)
Journal Entries
Date
Accounts Titles and Explanations
Debit
Credit
June. 30
Land
$ 400,000.00
Building
$ 560,000.00
Cash
$ 360,000.00
5% Note Payable (400000+560000-360000)
$ 600,000.00
(Being Land and Building purchased)
Dec. 31
Interest Expense (For 6 months July to dec)=600000*5%*6/12 =
$ 15,000.00
5% Note Payable
$ 30,000.00
Cash (15000+30000)
$ 45,000.00
(Being installment paid)
Dec. 31
Interest Expense (For 6 months Jan to June)=(600000-30000)*5%*6/12 =
$ 14,250.00
5% Note Payable
$ 30,000.00
Cash (14250+30000)
$ 44,250.00
(Being installment paid)
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.