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14 July, 07:39

Ember Company purchased a building with a market value of $280,000 and land with a market value of $55,000 on January 1, 2018. Ember Company paid $15,000 cash and signed a 25-year, 12% mortgage payable for the balance.

Requirements

1. Journalize the January 1, 2018, purchase.

2. Journalize the first monthly payment of $3,370 on January 31, 2018. (Round to the nearest dollar.)

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Answers (1)
  1. 14 July, 09:12
    0
    The journal entries are shown below:

    1. Building A/c Dr $280,000

    Land A/c Dr $55,000

    To Cash A/c Dr$15,000

    To Mortgage Payable A/c $320,000

    (Being the purchase is recorded)

    2. Interest Expense $3,200

    Mortgage payable A/c Dr $170

    To Cash A/c $3,370

    (Being the first monthly payment is recorded)

    The interest expense is computed below:

    = Principal * rate of interest * number of months : (total number of months in a year)

    = $320,000 * '12% * (1 months : 12 months)

    = $3,200

    The 1 months is calculated from January 1, 2018, to January 31, 2018
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