Q1SE Determining the cost of an asset... [FREE SOLUTION]

Chapter 9: Q1SE (page 526)

Determining the cost of an asset
Highland Clothing purchased land, paying $96,000 cash and signing a $300,000 note payable. In addition, Highland paid delinquent property tax of $1,100, title insurance costing $600, and $4,600 to level the land and remove an unwanted building. Record the journal entry for purchase of the land.

Short Answer

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The business entity will pay total cash of$102,300.

Step by step solution

Definition of Note Payable

Note payable is defined as the document reflecting the promise made by the borrower to the lender for repayment. It reflects the maturity date and the terms of payment.

Journal entry for purchase of land

Date	Accounts and Explanation	Debit ($)	Credit ($)
	Building	402,300
	Cash		102,300
	Note payable		300,000
	(To record the purchase of building)

Working note: Calculation of cash payment

Particular	Amount ($)
Cash for building	$96,000
Delinquent property tax	1,100
Title insurance	600
Remove unwanted building	4,600
Total cash paid	$102,300

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a	Purchase price of three acres of land	$86,000
b	Delinquent real estate taxes on the land to be paid by safe parking	6,300
c	Additional dirt and earth removing	8,400
d	Title insurance and the land acquisition	3,400
e	Fence around the boundary of the property	9,600
f	Building permit for building	900
g	Architect鈥檚 fee for design of building	20,100
h	Signs near the front of property	9,000
i	Material used to construct the building	217,000
J	Labor to construct the building	172,000
k	Interest cost on construction loan for the building	9,500
l	Parking lots on the property	29,400
m	Lights for parking lots	11,600
n	Salary of construction supervisor(80% to building; 20% to parking lot and concrete walks)	80,000
o	Furniture	11,700
p	Transportation of furniture from seller to the building	1,900
q	Additional fencing	6,900

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Short Answer

Step by step solution

Definition of Note Payable

Journal entry for purchase of land

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