Question

Tony’s favorite memories of his childhood were the times he spent with his dad at camp. Tony was daydreaming of those days a bit as he and Suzie jogged along a nature trail and came across a wonderful piece of property for sale. He turned to Suzie and said, “I’ve always wanted to start a camp where families could get away and spend some quality time together. If we just had the money, I know this would be the perfect place.” On November 1, 2022, Great Adventures purchased the land by issuing a $540,000, 6%, 10-year installment note to the seller. Payments of $5,995 are required at the end of each month over the life of the 10-year loan. Each monthly payment of $5,995 includes both interest expense and principal payments (i.e., reduction of the loan amount).

Late that night Tony exclaimed, “We now have land for our new camp; this has to be the best news ever!” Suzie said, “There’s something else I need to tell you. I’m expecting!” They decided right then, if it was a boy, they would name him Venture.

Record the issuance of the long-term note payable for the purchase of land on November 1, 2022.

Record the first monthly payment on the long-term note payable, made on November 30, 2022.

Record the second monthly payment on the long-term note payable, made on December 31, 2022.

The 12 monthly payments in 2023 (following year) will reduce the note's balance by an additional $41,054. Record the reclassification of this amount from long-term notes payable to current notes payable.

Prepare the closing entry for revenue accounts.

Prepare the closing entry for expense and loss accounts.

Answer 1

a. Land A/c Dr. $540,000

To Long term note payable A/c $540,000

b. Long term note payable A/c Dr. $3,295

Interest Expense A/c Dr. $2,700

To Bank A/c $5,995

(Being entry recorded for the first payment)

c. Long term note payable A/c Dr. $3,311.48

Interest Expense A/c Dr. $2,683.52

To Bank A/c $5,995

(Being entry recorded for the second payment)

d. Long Term Note payable A/c Dr. $41,054

          Short Term Note payable A/c Dr. 41,054

(Being the entries recorded on 31st December 2022 for reclassifying long term note payable to the current note payable)

e. Revenue A/c Dr. XXX

To Income Summary A/c XXX

(Being the entry recorded for closing revenue account)

(Note:- The question has not mentioned any amount of revenue, therefore, I am passing the entry by taking the amount as ‘XXX’)

e. Income Summary A/c Dr. $5,383.52

To Interest expense A/c $5,383.52

(Being the entry recorded for closing expenses and loss account)

(Note:- The question has not mentioned any other amount of expenses and loss, therefore, I am transferring only interest expenses to Income Summary A/c by closing the interest expense A/c)