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11 October, 23:29

On December 31, 2014, Thomas, Inc. borrowed $850, 000 on an eight percent, 15-year mortgage note payable. The note is to be repaid in equal semiannual installments of $49, 156 (payable on June 30 and December 31). Prepare journal entries to reflect (a) the issuance of the mortgage note payable, (b) the payment of the first installment on June 30, 2015, and (c) the payment of the second installment on December 31, 2015. Round amounts to the nearest dollar.

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  1. 12 October, 00:17
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    The journal entry is shown below:

    (A) Cash A/c Dr $850,000

    To Mortgage Note Payable $850,000

    (Being issuance of the mortgage note payable is recorded) /

    (B) Interest Expense A/c Dr $34,000

    Mortgage Note Payable A/c Dr $15,156

    To Cash A/c $49,156

    (Being payment of the first installment is recorded)

    The interest expense is computed below:

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

    = $850,000 * 8% * (6 months : 12 months)

    = $34,000

    The 6 months is calculated from December 31, 2014 to June 30, 2015

    (C) Interest Expense A/c Dr $33,394

    Mortgage Note Payable A/c Dr $15,762

    To Cash A/c $49,156

    (Being payment of the second installment is recorded)

    The interest expense is computed below:

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

    = $850,000 - $15,156 * 8% * (6 months : 12 months)

    = $34,000

    The 6 months is calculated from December 31, 2014 to June 30, 2015

    And, the remaining amount is debited to mortgage note payable
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