Question

 

Question: Preparing an amortization schedule and recording mortgages payable

entries

Kellerman Company purchased a building and land with a fair market value of

$550,000 (building, $425,000, and land, $125,000) on January 1, 2018. Kellerman

signed a 20-year, 6% mortgage payable. Kellerman will make monthly payments of

$3,940.37. Round to two decimal places. Explanations are not required for journal

entries.

Requirements

1. Journalize the mortgage payable issuance on January 1, 2018.

2. Prepare an amortization schedule for the first two payments.

3. Journalize the first payment on January 31, 2018.

4. Journalize the second payment on February 28, 2018.

Answer 1

 

Step 1: Definition of mortgage payable

The mortgage payable is a type of long-term debt backed by a security. The mortgage is generally includes the loan home loan whose matutrity date is generally comes in 10 year, 20 years.

Step 2: Journal entry of the issuance

Date	Particulars	Debit	Credit
January 1, 2018	Building	$425,000
	Land	$125,000
	Mortgage Payable		$550,000
	(Being entry is made to record the issuance of the mortgage payable)

 

Step 3: Amortization schedule of mortgage payable

Date	Beginning Balance	Principal Payment	Interest Expense	Ending Balance
01/01/2018				$550,000
01/31/2018	$550,000	$1,190.37	$2,750	$548,809.63
02/28/2018	$548,809.63	$1,196.33	$2,744.04	$547,613.30

 

Step 4: Journal entry of the payment

Date	Particular	Debit	Credit
January 31, 2018	Mortgage Payable	$1,190.37
	Interest Expense	$2,750
	Cash		$3,940.37
	(Being entry to record the first payment)

 

Step 5: Journal entry of the payment

Date	Particular	Debit	Credit
February 28, 2018	Mortgage Payable	$1,196.33
	Interest Expense	$2,744.04
	Cash		$3,940.37
	(Being entry to record the second payment)

 

 

 

 

 

 

 

 

 

The mortgage payable account and interest expense account is debited with $1,196.37 and $2,744.04