On June 1, 2020, Sheffield Corporation approached Silverman Corporation about buying a parcel of undeveloped land

On June 1, 2020, Sheffield Corporation approached Silverman Corporation about buying a parcel of undeveloped land. Silverman was asking $258,000 for the land and Sheffield saw that there was some flexibility in the asking price. Sheffield did not have enough money to make a cash offer to Silverman and proposed to give, in return for the land, a $305,000, five-year promissory note that bears interest at the rate of 4%. The interest is to be paid annually to Silverman Corporation on June 1 of each of the next five years. Silverman insisted that the note taken in return become a mortgage note. Silverman accepted the amended offer, and Sheffield signed a mortgage note for $305,000 due June 1, 2025. Sheffield would have had to pay 10% at its local bank if it were to borrow the cash for the land purchase. Silverman, on the other hand, could borrow the funds at 9%. Both Sheffield and Silverman have calendar year ends.

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Using (1) factor tables, (2) a financial calculator, or (3) Excel function PV, calculate the purchase price of the land and prepare an effective interest amortization table for the term of the mortgage note payable that is given in the exchange. (Hint: Refer to Chapter 3 for tips on calculating.) (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to 0 decimal places, e.g. 5,275.)

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List of Accounts

Prepare the journal entry for the purchase of the land. (Round answers to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

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List of Accounts

Prepare any adjusting entry that is required at the end of the fiscal year and the first payment made on June 1, 2021, assuming no reversing entries are used. (Round answers to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

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List of Accounts

Assume that Silverman had insisted on obtaining an instalment note from Sheffield instead of a mortgage note.

Using (1) factor tables, (2) a financial calculator, or (3) Excel function PMT, calculate the amount of the instalment payments that would be required for a five-year instalment note. (Hint: Refer to Chapter 3 for tips on calculating.) Use the same cost of the land to Sheffield Corporation that you determined for the mortgage note in a previous part of the question. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answer to 0 decimal places, e.g. 5,275.)

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List of Accounts

Assume that Silverman had insisted on obtaining an instalment note from Sheffield instead of a mortgage note.

Prepare an effective interest amortization table for the five-year term of the instalment note. (Round factor values to 5 decimal places, e.g. 1.25124 and final answers to 0 decimal places, e.g. 5,275. Do not leave any answer field blank. Enter 0 for amounts.)

eTextbook and Media

List of Accounts

Prepare the journal entry for the purchase of the land and the issuance of the instalment note. (Round answers to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

eTextbook and Media

List of Accounts

Prepare any adjusting journal entry that is required at the end of the fiscal year and the first payment made on June 1, 2021, assuming no reversing entries are used. (Round answers to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)