On June 30, Collins Management Company purchased land for $400,000 and a building for $560,000, paying $360,000 cash and issuing a 5% note for the balance, secured by a mortgage on the property. The terms of the note provide for 20 semiannual payments of $30,000 on the principal plus the interest accrued from the date of the preceding payment. Journalize the entry to record: a. The transaction on June 30
b. The payment of the first installment on December 31
c. The payment of the second installment the following June 30.

Assume a 360-day year.

a. On June. 30

Land    $400,000

Building    $560,000

        To Cash       $360,000

         To 5% Note Payable  $600,000

(To record the purchased of Land and Building)

b. On Dec 31

Interest Expense  $15,000  ($600,000 × 5% × 6 ÷ 12)  

5% Note Payable  $30,000  

       To Cash $45,000

(To record the first installment paid)

c. On June 30

Interest Expense $14,250 {(600,000 - $30,000) × 5% × 6 ÷ 12}  

5% Note Payable   $30,000

         To Cash            $44,250

(To record the second installment paid)

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Answer and Explanation:

The journal entries are shown below:

On June. 30

Land    $400,000

Building    $560,000

        To Cash       $360,000

         To 5% Note Payable  $600,000

(Being purchased of Land and Building is recorded)

On Dec 31

Interest Expense ($600,000 × 5% × 6 ÷ 12)   $15,000

5% Note Payable  $30,000

        To Cash $45,000

(Being the first installment paid)

On June 30

Interest Expense {(600,000 - $30,000) × 5% × 6 ÷ 12} $14,250

5% Note Payable   $30,000

         To Cash            $44,250

(Being the second installment paid)

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