When opening a new business account on QuickBooks in July, but the business actually opened in January, the first statement is that the owner purchased property by signing a $40,000 mortgage note at a 5% interest...how would you post that entry?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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When opening a new business account on QuickBooks in July, but the business actually opened in January, the first statement is that the owner purchased property by signing a $40,000 mortgage note at a 5% interest...how would you post that entry?

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Property purchased on mortgage means that the lender of money has provided the loan secured against the property.Property purchased is an asset, mortgage loan is a long term liability. Any interest accrued on the mortgage is charged against interest expense and the intefest payable is a current liability.

Though the business accounting started in July, the business operations started in January . So, on July, the business had purchased a property, had undertaken a mortgage liability. Also, from January to July, the business had incurred interest expenses and hence interest liability exists.

The property was worth $40,000, mortgage loan was worth $40,000.

Interest on $40,000 @5% for 6 months=$40,000*5%*0.5=$1,000

So, interest payable=$1,000

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