Question

On January 1, 2021 Exibit Company purchased land costing $800.000. Instead of paying cash at the time of purchase. Jalen plans to make four installment payments of $215,221.64 on June 30 and December 31 in 2021 and 2022.
They payments include interest at a rate of 6%.1.Record the purchase of land when the note is issued2. Record the first installment payment on June 30, 2021 and the second installment payment on December 31, 20213.Calculate the balance of Notes payable and interest expense on December 31, 2021

Answer 1

Answer: Exhibit journal $

Date

January 1 2021

Land Dr. 800,000

Creditors. Cr. 800,000

Recognition of land purchased on four installment payment with 6% interest.

June 30,2021

Installment principal Dr 191,221.64

Installment Interest Dr 24,000

Bank Cr. 215,221.64

Narration. Payment of installment principal and interest as at date.

December 31,2021

Installment principal Dr 191,221.64

Installment Interest Dr. 24,000

Bank Cr. 215,221.64

Narration.Payment of installment principal and interest due for date.

B. The balance on notes payable and Interest as at December 31 2021 is zero.

Explanation:

The notes is recognised by increasing the creditors accounts with a credit posting while the land is recognised by debiting the asset accounts.

The interest elements which is calculated on the total sum of 800,000 per annum is divided into two and the results separated from the biannual installment payment, the interest elements will be equally debited to the income statement.

There is no outstanding installment or Interest to be paid as at December 31 2021 , though there is two equal installment and interest still outstanding on the loan but they will not be due until 2022 based on facility agreement.