[Charlize]

I have to do a practice set in accounting, when I got to this transaction it stumped me... What do I debit and credit? How much for?

Purchased Land and an office building for $145,000, of which $100,800 was attributable to the fair market value of the building. A $55,000 cash down payment was made and a 5% five-year note was signed for the balance. Interest and 20% of the principal will be paid annually on this date. (Assume a 360-day year for interest computation purposes).

Could someone please help me with this?

[Charlize]

Guess no one can help :(

[CaptainForest]

Debit Building 108,000 (as stated in question)
Debit Land 37,000 (145,000-108,000)

Credit: Cash 55,000
Credit Notes Payable 90,000

At then end of each year...

Debit: Notes Payable
Debit: Interest Expense
Credit: Cash

[Charlize]

Debit Building 108,000 (as stated in question)
Debit Land 37,000 (145,000-108,000)

Credit: Cash 55,000
Credit Notes Payable 90,000

at then end of each year.....

Debit: Notes Payable
Debit: Interest Expense
Credit: Cash

Yay! I got the first part. The interest confused the heck out of me though:

Okay, the five year 5% note would be $900 ($90,000/5= $18,000 x 5%). That wouldn't be considered the interest right?
I figured the interest is $4500 (90,000 x 0.05% x 1)

Debit Interest Expense: $4,500
Credit Interest Payable: $4,500

*If paid annually $18,000.00 (20% of principle) & Interest $4500.00(5% on a 5yr note)= $22,500.00