Question

On June 1, 2020, Concord Corporation approached Silverman Corporation about buying a parcel of undeveloped land. Silverman was asking $242,000 for the land and Concord saw that there was some flexibility in the asking price. Concord did not have enough money to make a cash offer to Silverman and proposed to give, in return for the land, a $305.000, five-year promissory note that bears interest at the rate of 4%. The interest is to be paid annually to Silverman Corporation on June 1 of each of the next five years. Silverman insisted that the note taken in return become a mortgage note. Silverman accepted the amended offer, and Concord signed a mortgage note for $305,000 due June 1, 2025. Concord would have had to pay 10% at its local bank if it were to borrow the cash for the land purchase. Silverman, on the other hand, could borrow the funds at 9%. Both Concord and Silverman have calendar year ends. Click here to view the factor table PRESENT VALUE OF 1. Click here to view the factor table PRESENT VALUE OF AN ANNUITY OF 1. Using (1) factor tables. (2) a hnancial calculator or (3) Excel function PV.calculate the purchase price of the land and prepare an effective interest amortization table for the term of the mortgage note payable that is given in the exchange. (Hint: Refer to Chapter 3 for tips on calculating. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to decimal places, eg. 5,2750 Purchase price of the land S

Answer 1

Note: As per HOMEWORKLIB RULES only 4 portion of the question has been answered

Land is purchased for $305,000, five-year promissory note that bears interest at the rate of 4%
Concord Corporation would have had to pay 10% at its local bank if it were to borrow the cash for the land purchase.

On June 1, 2020 purchase price for Concord Corporation is fair value of promissory note:

Year	Cash flows
1	$12,200	305000*4% = 12200
2	$12,200
3	$12,200
4	$12,200
5	$12,200
5	$305,000
	$366,000

1. Purchase price of land i.e present value of cashflows=$235,629

Present value of cashflows = -PV(10%,5,12200)-PV(10%,5,0,305000)

2. Mortgage Note payable =interest amortisation

Date	Cash paid	Interest expense	Discount Amortisation	Note carrying amount
	(a)	(b) = (d*10%)	(c=b-a)	(d=last d+b-a)
June 1, 2020				$235,629
June 1, 2021	$12,200	$23,563	$11,363	$246,991
June 1, 2022	12,200	24,699	12,499	259,491
June 1, 2023	12,200	25,949	13,749	273,240
June 1, 2024	12,200	27,324	15,124	288,364
June 1, 2025	317,200	28,836	16,636	0
		$130,371	$69,371

Calculation details

			235629
305000*5%	255295*10%	23563-12200	235629+23563-12200
305000*5%	265075*10%	24699-12200	246991+24699-12200
305000*5%	275832*10%	25949-12200	259491+25949-12200
305000*5%	287665*10%	27324-12200	273240+27324-12200
305000*5%+305000	300682*10%	28836-12200	288364+28836-12200
	$130,371	$69,371

3. Journal entry for purchase of land

Date	Account titles and explanation	Debit	Credit
June 1, 2020	Land	$235,629
	Five-year promissory note		$235,629
	(Being land purchase through issue of five-year promissory note recognised)

4.Adjusting for FY 2020 and first payment entry

Date	Account titles and explanation	Debit	Credit
December 31, 2020	Interest expense	$13,745		(23563/12*7)
	Interest expense payable		$7,117	(12200/12*7)
	Five-year promissory note - discount amount	$6,628	(13745-7117)
	(Being interest and discount accrued for five-year promissory note)
June 1, 2021	Interest expense	$9,818		(23563/12*5)
	Interest expense payable	$7,117
	Cash		$12,200
	Five-year promissory note - discount amount	$4,735	(9818-(12200/12*5))
	(Being interest for five-year promissory note paid)

If the solution is helpful a thumps would be appreciated