Question

On June 1, 2017, Banana Corporation approached Apple Corporation about buying a parcel of undeveloped land. Apple was asking $240,000 for the land and Banana saw that there was some flexibility in the asking price. Banana did not have enough money to make a cash offer to Apple and proposed to give, in return for the land, a $300,000, five-year promissory note that bears interest at the rate of 4%. The interest is to be paid annually to Apple Corporation on June 1 of each of the next five years. Apple insisted that the note taken in return become a mortgage note. Apple accepted the amended offer, and Banana signed a mortgage note for $300,000 due June 1, 2022. Banana would have had to pay 10% at its local bank if it were to borrow the cash for the land purchase. Apple, on the other hand, could borrow the funds at 9%. Both Banana and Apple have December 31st year ends.
Required:

1) Assume that Apple had insisted on obtaining an installment note from Banana instead of a mortgage note. Then do the following:
a. Calculate the amount of the installment payments that would be required for a five-year installment note. Cost of Land = 231,765.84
b. Prepare the journal entry for the purchase of the land and the issuance of the installment note.
c. Prepare any adjusting journal entry that is required at the end of the fiscal year and the first payment made on June 1, 2018, assuming no reversing entries are used.

Answer 1

Ames Give thab 300 bs 12 0o

10909-09 +991 1.3% t9OIS,77 t 8196-16+1u s i.or + 1G9 34 2 . Land 214832 mmestagc

C3 Aヒ とh 8s, 163 5 2034 203