Question

On December 31 of the current year, Jones Company purchased a building for $100,000, paying $40,000 in cash and signing a 15-year mortgage for the $60,000, taken out at 5% interest. The journal entry to record the purchase of the building would be:________.

A. Unselected Date Accounts Debit Credit Building 100,000 Mortgages Payable 60,000 Cash 40,000.
B. Unselected Date Accounts Debit Credit Building 100,000 Interest Expense 3,000 Mortgages Payable 60,000 Cash 43,000.
C. Unselected Date Accounts Debit Credit Mortgages Payable 60,000 Cash 40.

Answer 1

The correct answer is:

Dr Building $100,000

Cr Mortgages payable $60,000

Cr Cash $40,000

Option A

Step-by-step explanation:

The building acquired is an increase in non-current asset,hence an increase in asset is meant to debited to asset account.

Also, the payment of cash also relates to an asset,but a decrease in asset and it is expected to credited to asset account(cash to be precise)

The balance of $60,000 upon which a mortgage was signed is credited to mortgages payable since it is an obligation owed,however the interest expense on the mortgage cannot be recognized now as it is expected over time not immediately.