Question

Fixed Asset Purchases with Note

On June 30, Collins Management Company purchased land for $320,000 and a building for $480,000, paying $400,000 cash and issuing a 7% note for the balance, secured by a mortgage on the property. The terms of the note provide for 20 semiannual payments of $20,000 on the principal plus the interest accrued from the date of the preceding payment.

If an amount box does not require an entry, leave it blank.

a. Journalize the entry to record the transaction on June 30.

June 30

b. Journalize the entry to record the payment of the first installment on December 31.

Dec. 31

c. Journalize the entry to record the payment of the second installment the following June 30.

June 30

Answer 1

Journal Entries:

Date	Account title and Explanation	Debit	Credit
June 30	Land	$320,000
	Building	$480,000
	Cash		$400,000
	Notes payable		$400,000
	[To record purchase of land and building]
Dec.31	Notes payable	$20,000
	Interest expense [$400,000 x 7% x 6/12]]	$14,000
	Cash		$34,000
	[To record payment of first installment]
June 30	Notes payable	$20,000
	Interest expense [($400,000-$20,000) x 7% x 6/12]]	$13,300
	Cash		$33,300
	[To record payment of second installment]