Question

Purchased a parcel of land on March 1, 2019 for $980,000 by paying $470,000 in cash and signing a short-term note payable with the seller for $510,000. You must repay the $510,000 in exactly one year on March 1, 2020. You agree to pay the seller 5 percent interest (annual rate) on a quarterly basis (June 1, September 1, December 1, 2019, and March 1, 2020).

[Adjusting Entry Required]

What is the Adjusted Entry?

Answer 1

Adjustment Entry General Journal Debit Credit Date 31-12-19 Interest expense $2,125 Interest payable 2,125 (To record adjustment entry for interest expense) Working Notes Interest expense for the month of December $ 2,125 Interest expense =$510000* 5%/12 *1 = Interest is paid on quarterly basis , hence on December 1,2019 quarterly interest was paid. Now adjustmemnt to be made in repsect of interest expense for the month of December i.e for one month