Journal Entries for Property Purchase and Rennovation

[David Pham]

Hello,

I'm hoping a CPA/Accountant might be able to point me to the right direction on this issue related to journal entries. I'm stuck with how to classified the renovation that I did for the property in my book. 

Here are some background information.

For example, let's say I purchased a property for $100,000 and put in $50,000 to renovate the property. The bank is loaning me 80% of the purchase price AND the renovation cost ($150,000 x 80% = $120,000). After the renovation, the property is now worth $200,000. How do I make the journal entries for this? The following is what I have so far...

Debit Cash: $20,000 (i received a net $20,000 from the bank)

Debit Building: $150,000

Credit Long-term liabilities - Mortgage: $120,000

BUT, The debits and credit doesn't add up (...which is a cardinal sin according to the accounting god :-) ). 

Please let me know what I am missing? Thanks!

David

[Ashish Acharya]

@David Pham , 

What do you mean Net 20k? how are you getting that no.?

When a bank loans 120k for the purchase and rehab of 150k, here is what it should be

Dr. Buliding+land                   100,000

Dr.Building improvement      50,000

     Cr. Loan Payable                         120,000

     Cr. Cash( Downpayment)             30,000

Your after repair value has nothing to do with how you record your initial purchase.