Question

Farrell, Inc. purchased land for $98,000 by signing a note payable for the same amount. Additionally, Farrell paid cast for the following: title insurance of $1,700, a commission of $9,800,$3,600 to remove an unwanted building, $3,000 to level and grade the property, $16,000 for paving, $25,000 to construct a fence around the perimeter, and $6,600 for lighting. The journal entry for the cash payment is:

A. debit land $18,100, debit land improvement $47,600, credit cash $65,700
B. debit land $11,500, debit land improvement $54,200, credit cash $65,700
C. debit land $109,500, debit land improvement $54,200, credit cash $163,700
D. debit land $116,100, debit land improvement $47,600, credit cash $163,700

Answer 1

The journal entry for the cash payment is: Debit Land $116,100, Debit Land Improvement $47,600, Credit Cash $163,700.

Step-by-step explanation:

The journal entry for the cash payment in this scenario is:
Debit Land $116,100
Debit Land Improvement $47,600
Credit Cash $163,700

The land purchase cost is debited as $116,100, which includes the purchase price of $98,000 and the additional costs of title insurance, commission, and building removal. The land improvement cost is debited as $47,600, which includes the costs of leveling, grading, paving, constructing a fence, and installation of lighting. The cash payment is credited for the total amount of $163,700, representing the payment made by Farrell, Inc. for the land and associated costs.