12-41

Name: SOLUTION Enter the appropriate amounts in the shaded cells in columns G, I and K.

1)

Computation of Land and Building Cost Purchase cost Escrow fee Property taxes Real estate commission Remodeling and repairs Total Computation of Discount on Note Face value of note Less: Present value of note Discount on notes payable Land $ 90,000 1,500 2,250 4,500 $ 98,250 Building 15% $ 510,000 8,500 12,750 25,500 67,500 $ 624,250 Total 85% $ 600,000 10,000 15,000 30,000 67,500 $ 722,500

$ 500,000
Payments

25,000

x x

PV factor

12.4622

311,555 $ 188,445

Enter the appropriate account titles in the shaded cells in columns D and E. Enter the appropriate amounts in the shaded cells in columns I and K. Journal Entry July 1

Land Improvements Land Building Discount on Notes Payable Cash Notes Payable

25,000 98,250 624,250 188,445 435,945 500,000

2)

Computation of Interest Expense and Principal Reduction for First Payment Carrying Value x Rate Interest expense $ 311,555 x 5% Carrying Value Interest expense Principal reduction $ 25,000 x $ 15,578 Journal Entries for First Payment Dec. 31 Notes Payable Cash To record payment Interest Expense Discount on Notes Payable To record interest expense Computation of Interest Expense for Second Payment
Carrying Value

$ 15,578 $ 9,422

25,000 25,000

15,578 15,578

Interest expense Journal Entries for First Payment June 30 Notes Payable Cash

$ 302,133

x x

Rate

5%

$ 15,107

25,000 25,000

To record payment Interest Expense Discount on Notes Payable To record interest expense 15,107 15,107