Question

1) Discount Co signed a 12​-year note payable on January​ 1, 2018​, of $ 780000. The note requires annual principal payments each December 31 of $ 65000 plus interest at 8​%. The entry to record the annual payment on December​ 31, 2020​, includes

A. a debit to Interest Expense for $52,000.

B. a debit to Interest Expense for $62,400.

C. a credit to Cash of $127,400.

D.a credit to Notes Payable for $65,000.

2) Eva Company purchased a building with a market value of $ 300,000 and land with a market value of $ 60,000 on January​ 1, 2018. Eva Company paid $ 45,000 cash and signed a 15​-year, 12​% mortgage payable for the balance

REQUIREMENT 1: Journalize the January​ 1,2018​, purchase

Account and Explanation Debit Credit

REQUIREMENT 2 : Journalize the first monthly payment of $3,781 on January​ 31,2018. ​(Round to the nearest​ dollar.)

Account and Explanation Debit Credit

Answer 1

1) Journal entry

Date	account and explanation	debit	credit
Dec 20	Notes payable	65000
	Interest expense (780000-65000*65000)*8%	52000
	Cash		117000
	(To record payment)

So answer is a) A. a debit to Interest Expense for $52,000.

2) Journal entries

Date	account and explanation	debit	credit
Jan 1.2018	Building	300000
	Land	60000
	Cash		45000
	Notes payable		315000
	(To record purchase)
Jan 31,2018	Interest expense (3150000*12%*1/12)	3150
	Notes payable	631
	Cash		3781
	(To record first month installment)