Q1SE - Horngren'S Financial And Managerial Accounting

Question

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.

Step-by-Step Solution

Answer

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

Step 1: 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.

Step 2: 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