Question

On January 1, 2020, Indigo Corporation acquired the following properties: 1. Investment property consisting of land and an apartment building in Toronto for $1.5 million. To finance this transaction, Indigo Corporation issued a five-year interest-free promissory note to repay $2,307,941 on January 1, 2025. 2. Vacant land in Rome, Italy for $3 million. To finance this transaction, Indigo Corporation obtained a 8% mortgage for the full purchase price, secured by the land, with a maturity date of January 1, 2030. Interest is payable annually. If Indigo Corporation borrowed this money from the bank, the company would need to pay 9% interest. 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 financial calculator, or (3) Excel function PV, calculate the value of the mortgage.

Using the calculation from the tables, record Indigo Corporation’s journal entries on January 1, 2020, for each of the purchases. (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 answer to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts

Date	Account Titles and Explanation	Debit	Credit
Jan. 1, 2020

	(To record purchase of land and building)
Jan. 1, 2020

	(To record purchase of land)

Answer 1

Entry 1- Purchase of Land and Building ( 1st Jan 2020 )

	Dr	Cr
Land and Building ( Toronto )	$ 1500,000
To Accounts Payable( 5 year Interest free )		$ 1500,000
( being purchase of land and building accounted )

Entry 2- Purchase of Land ( 1st Jan 2020 )

	Dr	Cr
Land ( Rome )	$ 2,702,836
To 8% Mortgage Loan		$ 2,702,836
( being purchase of Vacand land at rome accounted )

Workings ( In 5 decimal points )

Year	Event	Cashflow	DISF@9%	Present Value
1	Interest	$        2,40,000	0.91743	$        2,20,183.48624
2	Interest	$        2,40,000	0.84168	$        2,02,003.19838
3	Interest	$        2,40,000	0.77218	$        1,85,324.03521
4	Interest	$        2,40,000	0.70843	$        1,70,022.05066
5	Interest	$        2,40,000	0.64993	$        1,55,983.53271
6	Interest	$        2,40,000	0.59627	$        1,43,104.15845
7	Interest	$        2,40,000	0.54703	$        1,31,288.21876
8	Interest	$        2,40,000	0.50187	$        1,20,447.90712
9	Interest	$        2,40,000	0.46043	$        1,10,502.66708
10	Interest	$        2,40,000	0.42241	$        1,01,378.59365
10	Principal	$      30,00,000	0.38753	$     11,62,598.55109
				$     27,02,836.39937