Apollo sends out an Earnest money deposit of $10,000 for 123 Dragon way on Decem

Question

Apollo sends out an Earnest money deposit of $10,000 for 123 Dragon way on December 31, 2015. Apollo purchased 123 Dragon way on March 1, 2016 in the amount of $470,000. The property was leveraged with an 80% loan from Anchor Capital with 8% financing and 1% points paid up front. Apollo's financing costs are 12% per year on funds not secured by an actual property in inventory. Please calculate interest where applicable and make journal entries reflecting all activity relating to this transaction. Please be sure to date, label and be clear which financial statement your entries/accounts belong to.

Explanation / Answer

Notes: 1. It is assumed that 123dragon way is an asset and capilised with 1% points paid upfront i.e. 470000 + 470000*0.01 = $474700

2. 80% Loan has been arranged from Anchor Capital. Loan has been given by Anchor on total value of asset excluding 1% points paid upfront in cash.

3. EMD paid earlier on 31.12.2015 shall be adjusted and balance to be paid in cash.

Date General journal Debit $ Credit $ Financial Statement ending on 31.12.2015 31.12.2015 Current Deposit-EMD 10000 Cash 10000 ( Earnest money deposit with vendors) Financial Statement ending on 31.12.2016 01.03.2016 123 Dragon way 474,700 Current Deposit-EMD 10000 8% Loan from Anchor Capital 376,000 Cash 88,700

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