Liabilities and Equity Exercises II

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Larry M Walther; Christopher J Skousen

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Larry M Walther & Christopher J Skousen

Liabilities and Equity Exercises II

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Liabilities and Equity Exercises II

1st edition

All material in this publication is copyrighted, and the exclusive property of

ISBN 978-87-7681-776-3

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Contents

Contents

www.sylvania.com

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Contents

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Problem 1

Problem 1

On October 1, 20X4, River Woods purchased land by giving $200,000 in cash and executing a $800,000 note payable to the former owner he note bears interest at 8% per annum, with interest being payable annually on September 30 of each year Rojas is also required to make a $200,000 payment toward the note’s principal on every September 30

a) Prepare the appropriate journal entry to record the land purchase on October 1, 20X4 b) Prepare the appropriate journal entry to record the year-end interest accrual on

December 31, 20X4

c) Prepare the appropriate journal entry to record the payment of interest and principal on September 30, 20X5

d) Prepare the appropriate journal entry to record the year-end interest accrual on

December 31, 20X5

e) Prepare the appropriate journal entry to record the payment of interest on

September 30, 20X6

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Problem 1

Worksheet 1

(a), (b), (c), (d), (e)

GENERAL JOURNAL

Date Accounts Debit Credit

1-Oct

31-Dec

30-Sep

31-Dec

30-Sep

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Problem 1

Solution 1

(a), (b), (c), (d), (e)

GENERAL JOURNAL

Date Accounts Debit Credit

To record purchase of land for cash and 8%

note payable

To record accrued interest for 3 months ($800,000 X 8% X 3/12)

To record repayment of note and interest ($800,000 X 8% X 9/12)

To record accrued interest for 3 months ($600,000 X 8% X 3/12)

To record repayment of note and interest ($600,000 X 8% X 9/12)

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Problem 2

Problem 2

On January 1, 20X5, Diego Garcia borrowed $300,000 to purchase a new oice building he loan is to

be repaid in 2 equal annual payments, beginning December 31, 20X5 he annual interest rate on the loan is 6%

a) Calculate the annual payment on the loan

b) Prepare the appropriate journal entries to record the loan and subsequent payments at the end of 20X5 and 20X6

c) If the loan was to be repaid in 24 equal monthly payments (0.5% interest rate per month), how much would the monthly payment equal?

Worksheet 2

a)

Loan Amount = Payments × Annuity Present Value Factor

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