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 $500,000, 6%, 10-year installment note to the seller. Payments of $5,551 are required at the end of each month over the life of the 10-year loan. Each monthly payment of $5,551 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.

1) Prepare the journal entries for transactions. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.)

• 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 $38,014. 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.

2) Prepare an income statement for the period ended December 31, 2022. Choose the appropriate accounts to complete the company's income statement. The unadjusted or post-closing balances will appear for each account, based on your selection.

3) Prepare a classified balance sheet as of December 31, 2022. Choose the appropriate accounts to complete the company's balance sheet. The unadjusted or post-closing balances will appear for each account, based on your selection.

Answer 1

1	01-11-2022	Issuance of Long term note payable for purchase of land
		Land A/c     Dr        5,00,000
		To Notes payable A/c    5,00,000
2	30-11-2022	First monthly payment of notes payable
		Long term Notes payable A/c Dr   3051
		Interest on notes payable A/c Dr 2500
		To Cash A/c   5551
3	31-12-2022	Second monthly payment of notes payable
		Long term Notes Payable A/c   Dr   3066
		Interest on notes payable A/c   2485
		To Cash A/c   5551
4	31-12-2022	Long term Notes payable A/c Dr 38014
		To current notes payable A/c        38014
5	31-12-2022	Closure of revenue
		No entry since it is not an income transaction to entity
6	31-12-2022	Closure for expenses
		Income summary Account Dr 4985
		To interest on notes payable A/c 4985
		Being current year 2 months interest expenses transferred to income summary account.

Loan amount	5,00,000
Rate of interest	6%
Monthly installment	5551
Loan amortistion schedule
Month	Principle amt	monthly payment	Interest payment	Principle portion= Month payment - int payment
1	5,00,000	5,551	2,500	3,051
2	4,96,949	5,551	2,485	3,066
Total		11,102	4,985	6,117