Question

On March 1, 2019, Myriad Entertainment purchased a parcel of land for $950,000 by paying $490,000 in cash and signing a short-term note payable with the seller for $460,000. You must repay the $460,000 in exactly one year on March 1, 2020. You agree to pay the seller 5% interest (annual rate) on a quarterly basis (June 1, September 1, December 1, 2019; and March 1, 2020). Give the journal entries for each payment and the adjusting entry needed on December 31, 2019.

Answer 1

Answer:

Given information:

Land purchased=$9,50,000(cash basis=4,90,000 & note basis=4,60,000).

Interest 5% on quarterly basis calculated

The following are the journal entries of required payments:

Date	Particulars	Debit	Credit
Mar 1 2019	Land	$9,50,000
	Cash		$4,90,000
	Note payable		$4,60,000
	(Narration: land purchased on both cash and credit basis)
June 1 2019	Interest expense(4,60,000*5/100*3/12=5,750)	$5,750
	Interest payable		$5,750
	(Narration:Interest payable on quarterly basis )
sep 1 2019	Interest expense(4,60,000*5/100*3/12=5,750)	$5,750
	Interest payable		$5,750
	(Narration:Interest payable on quarterly basis )
Dec 1 2019	Interest expense(4,60,000*5/100*3/12=5,750)	$5,750
	Interest payable		$5,750
	(Narration:Interest payable on quarterly basis )
	ADJUSTING ENTRY FOR DEC 31 2019
Dec 31 2019	Interest expense(4,60,000*5/100*1/12=1917)	$1,917
	interest payable		$1,917
	(Narration:interest payable for one month dec)
Mar 1 2020	Interest expense(4,60,000*5/100*2/12=3,833)	$3,833
	Interest payable(5,750+5,750+5,750+1,917=19,167)	$19,167
	Note payable	$4,60,000
	Cash		$4,83,000
	(Narration:total note amount paid including total interest)