Question

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On June 30, Collins Management Company purchased land for $420,000 and a building for S580,000, paying $340,000 cash and issuing a 4% note for the balance, secured by a mortgage on the property. The terms of the note provide for 20 semiannual payments of $33,000 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. Refer to the Chart of Accounts for exact wording of account titles. CHART OF ACCOUNTS Collins Management Company General Ledger ASSETS 110 Cash 111 Accounts Receivable 112 Interest Receivable 113 Notes Receivable 115 Inventory 116 Supplies 118 Prepaid Insurance 120 Land 123 Building 124 Accumulated Depreciation-Building 125 Office Equipment 126 Accumulated Depreciation Office Equipment LIABILITIES 210 Accounts Payable 213 Interest Payable 214 Notes Payable 215 Salaries Payable REVENUE 410 Sales 610 Interest Revenue EXPENSES 510 Cost of Goods Sold 520 Salaries Expense 524 Depreciation Expense-Building 525 Delivery Expense 526 Repairs Expense 529 Selling Expenses 531 Rent Expense 532 Depreciation Expense-Office Equipment 533 Insurance Expense 534 Supplies Expense 535 Payroll Tax Expense 536 Vacation Pay Expense 537 Pension Expense 538 Cash Short and Over

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Answer 1

Requirement a: Prepare the following journal entries for the acquisition of land building

Date	Account Title and Explanation	Post Ref.	Debit	Credit	Assets	Liability	Equity
June 30	Land		$420,000		$420,000
	Building		$580,000		$580,000
	Cash			$340,000	($340,000)
	Notes Payable ($420,000 + $580,000 − $340,000)			$660,000		$660,000
	To record purchase of land and building

Requirement b: Prepare the following journal entry for the 1st installment of notes payable paid

Date	Account Title and Explanation	Post Ref.	Debit	Credit	Assets	Liability	Equity
Dec. 31	Interest Expense (($660,000 × 4%) × 6 ÷ 12)		$13,200				($13,200)
	Notes Payable		$33,000			($33,000)
	Cash ($13,200 + $33,000)			$46,200	($46,200)
	To record 1st installment paid on notes payable along with interest

Requirement c: Prepare the following journal entry for the 2nd installment of notes payable paid

Date	Account Title and Explanation	Post Ref.	Debit	Credit	Assets	Liability	Equity
June 30	Interest Expense (($660,000 − $33,000) × 4%) × 6 ÷ 12)		$12,540				($12,540)
	Notes Payable		$33,000			($33,000)
	Cash ($12,540 + $33,000)			$45,540	($45,540)
	To record 2nd installment paid on notes payable along with interest