Question

Glen Pool Club, Inc., has a $145,000 mortgage liability. The mortgage is payable in monthly installments of $1,491, which include interest computed at an annual rate of 12 percent (1 percent monthly).

a. Prepare a partial amortization table showing (1) the original balance of this loan, and (2) the allocation of the first two monthly payments between interest expense and the reduction in the mortgage’s unpaid balance.

b. Prepare the journal entry to record the second monthly payment.

c. Will monthly interest increase, decrease, or stay the same over the life of the loan?

Prepare a partial amortization table showing (1) the original balance of this loan, and (2) the allocation of the first two monthly payments between interest expense and the reduction in the mortgage’s unpaid balance. (Round your answers to the nearest dollar amount. Enter all amounts as positive numbers.)

	Amortization Table Monthly Interest Period Monthly Payment Interest Expense Reduction in Unpaid Balance Unpaid Balance Original balance 1 2

Prepare the journal entry to record the second monthly payment. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

• Record second monthly installment on mortgage payable.

Note: Enter debits before credits.

	Transaction General Journal Debit Credit 1

Will monthly interest increase, decrease, or stay the same over the life of the loan?

	Monthly interest will over the life of the loan

Answer 1

A)

Amortization Table

Monthly interest period	Opening Balance	Monthly Payment	Interest Expense	Reduction in Unpaid Balance	Unpaid Balance
1	1,45,000.00	1,491	1,450.00	41.00	1,44,959.00
2	1,44,959.00	1,491	1,449.59	41.41	1,44,917.59

B)

Interest expenses	1449.59
Mortgage liability	41.41
Cash		1491

C)

Monthly interest will reduce over the life of the loan

In the initial years since the principal amount is more the interest component is more. Over the period of loan interest component will decrease and the principal component will increase due to repayment of the principal amount in installments.