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.)

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