Question

Recording and Assessing the Effects of installment Loans: Semiannual Installments

On December 31,2015 Wasley Corporation borrowed $300,000 on a 6%, 10-year mortgage note payable. The note is to be repaid with equal semiannual installments, beginning June 30, 2016.

Required

a. Compute the amount of the semiannual installment payment using a financial calculator or Excel and round amount to the nearest dollar.

Ans.

b. Prepare the journal entry (1) to record Wasley's borrowing of funds on December 31,2015, (2) to record Wasley's installment payment on December 31, 2016.

General Journal

Date	Description	Debit	Credit
12/31/15	cash
	Mortgage Note Payable
06/30/16	Interest expense
	Mortgage Note Payable
	Cash
12/31/16	Interest Expense
	Mortgage Note Payable
	Cash

c.Post the journal entries from part "b" to their respective T-acccounts (cash(A), mortgage note payable(L), interest expense(E).

d.Record each of the transactions from part "b" in the financial statement effects template.

Balance Sheet Income Statement

Transaction	Cash Asset	+	Noncash Assets	=	Liabilities	+	Contrib. Captal	+	Earned Capital	Revenue	-	Expenses	=	Net Income
12/31/15 Borrow $300,000 on a 10 year mortgage note payable	$	+	$	=	$	+	$	+	$	$	-	$	=	$
6/30/16 Interest payment on note		+		=		+		+			-		=
12/31/16 Interest Payment on note		+		=		+		+			-		=

Answer 1

Answer (a):

Amount borrowed = $300,000

Number of semiannual installments = 10 * 2 = 20

Semiannual interest rate = 6% / 2 = 3%

Amount of the semiannual installment = PMT(rate, nper, pv, fv, type) = PMT (3%, 20, -300000, 0, 0) = $20,164.71

Amount of the semiannual installment = $20,164.71

Answer (b):

Calculations:

June 30, 2016:

Interest expense = $300000 * 6% / 2 = $9000

Repayment of mortgage note payable = 20164.71 -9000 = $11,164.71

Dec 31, 2016:

Interest expense = (300000 - 11164.71) * 6% / 2 = $8665.06

Repayment of mortgage note payable  =20164.71 - 8665.06 = $11499.65

Answer (c):

Answer (d):