On January 1, 2023, Landlord Corporation acquired the following properties:

1. Investment property consisting of land and an apartment building in Toronto for $1.5 million. To finance this transaction, Landlord issued a five-year interest-free promissory note to repay $2,307,941 on January 1, 2028.

2. Vacant land in Rome, Italy, for $2 million. To finance this transaction, Landlord obtained a 7% mortgage for the full purchase price, secured by the land, with a maturity date of January 1, 2033. Interest is payable annually. If Landlord borrowed this money from the bank, the company would need to pay 9% interest.

Instructions

a. Using (1) factor tables, (2) a financial calculator, or (3) Excel function PV, calculate the value of the mortgage. Using the calculation from the tables, record Landlord’s journal entries on January 1, 2023, for each of the purchases.

b. Record the interest at the end of the first year on both instruments using the effective interest method.