Question

Carla Vista Ltd. issued an instalment note on January 1, 2020 (with a required yield of 12%) in exchange for land that it purchased from Safayeni Ltd. Safayeni’s real estate agent had listed the land on the market for $113,000. The note calls for three equal blended payments of $42,884 that are to be made at December 31, 2020, 2021, and 2022. (USING PV TABLE)

a) Prepare an effective-interest amortization table for the instalment note for the three-year period. (12/31/20, 12/31/21, 12/31/22)

b) Prepare Carla Vista’s journal entry for the purchase of the land. (1/1/2020)

c) Prepare Carla Vista’s journal entry for the first instalment payment on the note on December 31, 2020.

Answer 1

7 a) Prepare an effective-interest amortization table for the instalment note for the three-year period. Amount of Annual Instalment P.V @ 12%.n=3 Total Present Value of Annual Instalments 42884 2.40183 103000 Year Interest Reduction of Principal Note Payment 1/1/2020 12/31/2020 42884 12/31/2021 42884 12/31/2022 42884 Carrying Amount 103000 72476 38289 12360 8697 4595 30524 34187 38289 19 b) Prepare Carla Vista's journal entry for the purchase of the land. (1/1/2020) 20 Credit Debit 103000 Date Account title & explanation 1/1/2020 Land Notes Payable (To record purchase of Land) 103000

26 c) Prepare Carla Vista's journal entry for the first instalment payment on the note on December 31, 2020. 27 28 Date Account title & explanation Debit Credit 29 12/31/2020 Interest expense 12360 Notes Payable 30524 Cash 42884 (To record first instalment payment)