| | Exercise 14-6 On January 1, 2020, Culver 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, Culver 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 $5 million. To finance this transaction, Culver Corporation obtained a 6% mortgage for the full purchase price, secured by the land, with a maturity date of January 1, 2030. Interest is payable annually. If Culver 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 Culver Corporations 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 | No Entry Investment Property Interest Expense Notes Payable Mortgage Payable Land Cash | | | | | Investment Property Notes Payable Mortgage Payable Land Cash No Entry Interest Expense | | | | | (To record purchase of land and building) | | | | Jan. 1, 2020 | Land Cash No Entry Interest Expense Investment Property Notes Payable Mortgage Payable | | | | | Land No Entry Mortgage Payable Cash Interest Expense Investment Property Notes Payable | | | | | (To record purchase of land) | | | | | | | | Record the interest at the end of the first year on both instruments using the effective interest method. (Round answers 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.) | Account Titles and Explanation | Debit | Credit | | Investment Property Cash Interest Expense Mortgage Payable Land No Entry Notes Payable | | | | Investment Property Land Notes Payable Mortgage Payable No Entry Interest Expense Cash | | | | (To record interest on five-year note) | | | | No Entry Land Mortgage Payable Investment Property Notes Payable Interest Expense Cash | | | | Mortgage Payable Land No Entry Notes Payable Interest Expense Cash Investment Property | | | | Interest Expense Mortgage Payable Land No Entry Cash Notes Payable Investment Property | | | | (To record interest on ten-year mortgage) | | | | | | | | | Question Attempts: 0 of 5 used | | SAVE FOR LATER | SUBMIT ANSWER | | | | |
