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15 February, 22:35

Monty Corp. receives $180,000 when it issues a $180,000, 10%, mortgage note payable to finance the construction of a building at December 31, 2019. The terms provide for annual installment payments of $30,000 on December 31. Prepare the journal entries to record the mortgage loan and the first two payments. (Round answers to 0 decimal places, e. g. 15,250. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

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  1. 15 February, 23:50
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    December 31, 2019

    Dr. Cash $180,000

    Cr. Mortgage Payable $180,000

    December 31, 2020

    Dr. Mortgage Payable $12,000

    Dr. Interest Expense $18,000

    Cr. Cash $30,000

    December 31, 2021

    Dr. Mortgage Payable $13,200

    Dr. Interest Expense $16,800

    Cr. Cash $30,000

    Explanation:

    Mortgage Loan

    Installment of Mortgage loan includes the interest expense and principal value. As Cash of $180,000 received, so we need to debit the cash with this value. On the other hand there is a liability arise from this event. A mortgage payable account will be credited because it has credit nature.

    First Loan Payment

    Installment Payment = $30,000

    Interest portion of Installment = $180,000 x 10% = $18,000

    Interest portion of Installment = $30,000 - $18,000 = $12,000

    First Loan Payment

    Installment Payment = $30,000

    Interest portion of Installment = ($180,000-12,000) x 10% = $16,800

    Interest portion of Installment = $30,000 - $16,800 = $13,200
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