Question

Detwiler Orchard issues a $640,000, 6%, 15-year mortgage note to obtain needed financing for a new lab. The terms call for annual payments of $65,896 each.

Prepare the entries to record the mortgage loan and the first installment payment.

Answer 1

Working Notes:
REPAYEMETNT SCHEDULE
	December.31	Year 1        (Carrying Amount)	Note Payament             (Cash Paid )	Interest Expenses (6% of Jan.01 Note Carrying Amount)	Decrease in note Payable	Carrying Amount at Year End
1	Year 1	$                       640,000	$                         65,896	$                              38,400	$               27,496	$               612,504
Solution:
Journal Entries
Date	Account Title and explanation	Debit	Credit
Year 1 Jan.01	Cash	$                       640,000
	Note Payable		$                       640,000
	(To record the issue of mortgage note)
Year 1 Dec. 31	Interest Expenses	$                         38,400
	Note Payable	$                         27,496
	Cash		$                         65,896
	(To record the first interest installment Payment)