On June 30, Beahn Management Company purchased land for $250,000 and a building

Question

On June 30, Beahn Management Company purchased land for $250,000 and a building for $350,000 paying $300,000 cash and issuing an 8% note for the balance, secured by a mortgage on the property. The terms of the note provide for 20 semiannual payments of $15,000 on the principle plus the interest accrued from the date of the preceeding payment. Journalize the entry to record (a) the transaction on June 30, (b) the payment of the first installment on December 31, and (c) the payment of the second installment the following June 30.

Explanation / Answer

a. Journalize the entry to record the transaction on June 30. Land DEBIT 250000 Building DEBIT 350000 Cash CREDIT 300000 Note payable 300000 b. Journalize the entry to record the payment of the first installment on December 31. Interest expense DEBIT 12000 ((300000*.08)/12*6) Note Payable DEBIT 3000 (15000-12000) Cash CREDIT 15000 c. Journalize the entry to record the payment of the second installment the following June 30. Interest expense DEBIT 11880 ((297000*.08)/12*6) Note payable DEBIT 3120

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