Question

 

Recording and Assessing the Effects of Installment Loans
On December 31, 2015, Dehning, Inc., borrowed $700,000 on an 8%, 10 -year mortgage note payable.
The note is to be repaid in equal quarterly installments of $25,589 (beginning March 31, 2016).

a. Prepare journal entries to reflect (1) the issuance of the mortgage note payable, (2) the payment of the first installment on March 31, 2016, and (3) the payment of the second installment on June 30, 2016.

Round answers to the nearest whole number.

General Journal
Date	Description	Debit	Credit
12/31/15	Cash	Answer	Answer
	Mortgage note payable	Answer	Answer
3/31/16	Interest expense	Answer	Answer
	Mortgage note payable	Answer	Answer
	Cash	Answer	Answer
6/30/16	Interest expense	Answer	Answer
	Mortgage note payable	Answer	Answer
	Cash	Answer	Answer

b. Post the journal entries from part b to their respective T-accounts.

Cash
	Answer	Answer
	Answer	Answer

Interest Expense
	Answer	Answer
	Answer	Answer

Mortgage Note Payable
	Answer	Answer
	Answer	Answer

c. Record each of the transactions from part b in the financial statement effects template. Use negative signs with answers, when appropriate.

Transaction					Cash Asset		+	Noncash Assets		=	Liabilities		+	Contr. Capital	+	Earned Capital		Revenue	-	Expenses	=	Net income
12/31/15 Borrowed on mortgage note payable					$Answer			$Answer			$Answer			$Answer		$Answer		$Answer		$Answer		$Answer
3/31/16 Payment on note					Answer			Answer			Answer			Answer		Answer		Answer		Answer		Answer
6/30/16 Payment on note					Answer			Answer			Answer			Answer		Answer		Answer		Answer		Answer

Answer 1

• All working forms part of the answer

General Journal
Date	Description	Debit	Credit
12/31/15	Cash	$          700,000	$                  -
	Mortgage note payable	$                   -	$          700,000
3/31/16	Interest expense [700000 x 8% x 3/12]	$            14,000	$                  -
	Mortgage note payable[ 25589 - 14000]	$            11,589	$                  -
	Cash	$                   -	$           25,589
6/30/16	Interest expense [(700000 - 11589) x 8% x 3/12]	$            13,768	$                  -
	Mortgage note payable	$            11,821	$                  -
	Cash	$                   -	$           25,589

Cash
12/31/15	$                             700,000	$            25,589	3/31/16
	0	$            25,589	6/30/16
Interest Expense
3/31/16	$                               14,000	0
6/30/16	$                               13,768	0
Mortgage Note Payable
3/31/16	$                               11,589	$          700,000	12/31/15
6/30/16	$                               11,821	0

Transaction	Cash Asset	+	Noncash Assets	=	Liabilities	+	Contr. Capital	+	Earned Capital	Revenue	-	Expenses	=	Net income
12/31/15 Borrowed on mortgage note payable	$                                  700,000.00		$                         -		$        700,000.00		$                       -		$                     -	$                               -		$                    -		$                   -
3/31/16 Payment on note	$                                  (25,589.00)		$                         -		$        (11,589.00)		$                       -		$   (14,000.00)	$                               -		$    14,000.00		$ (14,000.00)
6/30/16 Payment on note	$                                  (25,589.00)		$                         -		$        (11,820.78)		$                       -		$   (13,768.22)	$                               -		$    13,768.22		$ (13,768.22)