On June 1, 2017, Banana Corporation approached Apple Corporation
about buying a parcel of undeveloped land. Apple was asking
$240,000 for the land and Banana saw that there was some
flexibility in the asking price. Banana did not have enough money
to make a cash offer to Apple and proposed to give, in return for
the land, a $300,000, five-year promissory note that bears interest
at the rate of 4%. The interest is to be paid annually to Apple
Corporation on June 1 of each of the next five years. Apple
insisted that the note taken in return become a mortgage note.
Apple accepted the amended offer, and Banana signed a mortgage note
for $300,000 due June 1, 2022. Banana would have had to pay 10% at
its local bank if it were to borrow the cash for the land purchase.
Apple, on the other hand, could borrow the funds at 9%. Both Banana
and Apple have December 31st year ends.
Required:
1) Assume that Apple had insisted on obtaining an installment
note from Banana instead of a mortgage note. Then do the
following:
a. Calculate the amount of the installment payments that would be
required for a five-year installment note. Cost of Land =
231,765.84
b. Prepare the journal entry for the purchase of the land and the
issuance of the installment note.
c. Prepare any adjusting journal entry that is required at the end
of the fiscal year and the first payment made on June 1, 2018,
assuming no reversing entries are used.
On June 1, 2017, Banana Corporation approached Apple Corporation about buying a parcel of undevel...
On june 1, 2017, MacDougall corporation approached Silverman Corporation about buying a parcel of undeveloped land. Silverman was asking 240,00 for the land and MacDougall saw there was some flexibility in the asking price. Macdougall did not have enough money to make the cash offer to Silverman and proposed to give, in return for the land, a 300,00$, five year promissory note that bears interest at the rate of 4%. The interest is to be paid annually to Silverman Corporation...
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