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13 January, 05:23

Kellerman Company purchased a building and land with a fair market value of $ 550 comma 000 (building, $ 425 comma 000 and land, $ 125 comma 000 ) on January 1, 2018. Kellerman signed a 20 -year, 6 % mortgage payable. Kellerman will make monthly payments of $ 3 comma 940.37. Round to two decimal places. Explanations are not required for journal entries.

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  1. 13 January, 06:20
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    Answer and Explanation:

    a. The Journal Entry is shown below:-

    Building Dr, $425,000

    Land Dr, $125,000

    To Mortgage payable $550,000

    (Being issuance of mortgage payable is recorded)

    b. The preparation of amortization table is shown below:-

    Date Interest Cash payment Principal Carrying value

    expenses amortization

    Borrow

    Date $550,000

    First PMT $2,750 $3,940.37 $1,190.37 $548,809.63

    ($550,000 * 6% * 1 : 12)

    Second

    PMT $2,744.05 $3,940.37 $1,196.32 $547,613.31

    (548,809.63 * 6% * 1 : 12)

    C. The Journal entry to record the first payment is shown below:-

    Interest Expense Dr, $2,750

    Mortgage Payable Dr, $1,190.37

    To Cash $3,940.37

    (Being the first payment is recorded)

    D. The Journal entry to record the second payment is shown below:-

    Interest Expense Dr, $2,744.05

    Mortgage Payable Dr, $1,196.32

    To Cash $3,940.37

    (Being the second payment is recorded)
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