On June 1, 2020, Culver Corporation approached Silverman Corporation about buying a parcel of undeveloped land. Silverman was asking $ 256,000 for the land and
On June 1, 2020, Culver Corporation approached Silverman Corporation about buying a parcel of undeveloped land. Silverman was asking $ 256,000 for the land and Culver saw that there was some flexibility in the asking price. Culver did not have enough money to make a cash offer to Silverman and proposed to give, in return for the land, a $ 310,000, 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 Culver signed a mortgage note for $ 310,000 due June 1, 2025. Culver 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 Culver and Silverman have calendar year ends.
Assume that Silverman had insisted on obtaining an instalment note from Culver instead of a mortgage note. Prepare an effective interest amortization table for the five-year term of the instalment note
Prepare the journal entry for the purchase of the land. (Round answers to O 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 O for the amounts.) Date Account Titles and Explanation Debit Credit June 1, 2020 Land 239491 Notes Payable 239491 Prepare any adjusting entry that is required at the end of the fiscal year and the first payment made on June 1, 2021, assuming no reversing entries are used. (Round answers to O 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 O for the amounts.) Date Account Titles and Explanation Debit Credit Dec. 31, 2020 Interest Expense 13970 Interest Payable 7233 Bonds Payable 6737 June 1, 2021 Interest Expense 9979 Interest Payable 7233 Bonds Payable 4812 Cash 12400 Assume that Silverman had insisted on obtaining an instalment note from Culver instead of a mortgage note. Using (1) factor tables, (2) a financial calculator, or (3) Excel function PMT, calculate the amount of the instalment payments that would be required for a five-year instalment note. (Hint: Refer to Chapter 3 for tips on calculating.) Use the same cost of the land to Culver Corporation that you determined for the mortgage note in a previous part of the question. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answer to O decimal places, e.g. 5,275.) Amount of the instalment $ 57234 Instalment Note Payable Discount Amortized Note Carrying Amount Cash Paid Interest Expense $ 31000 $ 57234 $ 12400 $ 44834 26516 57234 10607 46627 21853 57234 8742 48492 17004 57234 6802 50432 11961 57234 4785 119615 0 Prepare the journal entry for the purchase of the land and the issuance of the instalment note. (Round answers to O 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 O for the amounts.) Date Account Titles and Explanation Debit Credit June 1, 2020 Land 310000 Notes Payable 310000 Prepare any adjusting journal entry that is required at the end of the fiscal year and the first payment made on June 1, 2021, assuming no reversing entries are used. (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 O for the amounts.) Date Account Titles and Explanation Debit Credit Dec. 31, 2020 Interest Expense 7233 Interest Payable 7233 June 1, 2021 Interest Expense 5167 Interest Payable 7233 Bonds Payable 22834 Cash 57234 Compare the balances of the two different notes payable and related accounts at December 31, 2020. Be specific about the classifications on the statement of financial position. Mortgage Note Payable Culver Corporation (Partial) Statement of Financial Position December 31, 2020 Current Liabilities Mortgage Payable $ 62000 Non-current Liabilities Mortgage Payable 248000 Instalment Note Payable Culver Corporation (Partial) Statement of Financial Position December 31, 2020 Current Liabilities Notes Payable $ Interest Payable Non-current Liabilities A Notes Payable
