Question

In: Accounting

Jernigan Co. receives €240,000 when it issues a €240,000, 6%, mortgage note payable to finance the...

Jernigan Co. receives €240,000 when it issues a €240,000, 6%, mortgage note payable to finance the construction of a building at December 31, 2020. The terms provide for annual instalment payments of €33,264 on December 31.

instructions

  1. Prepare the journal entry to receive the funds on 31 December 2020.
  2. Jernigan has an annual accounting period ending on 30 April. Prepare the AJE required on 30 April 2021.
  3. Prepare the journal entry for the first instalment payment due on 31 December 2021. Recall that each instalment payment is part interest, part principal.
  4. Prepare the AJE required on 30 April 2022. Round to two decimal places.
  5. Prepare the portion of Jernigan’s liability section of its Balance Sheet on 30 April 2021 that shows how the mortgage and interest should be reported.

Solutions

Expert Solution

Date General Journal Debit Credit
Dec 31, 2020 Cash 240,000.00
Note Payable 240,000.00
April 30, 2021 Interest Expense      4,800.00
Interest Payable      4,800.00
(240,000 x 6% x 4/12)
Dec 31, 2021 Interest Expense      9,600.00
Interest Payable      4,800.00
Note Payable    18,864.00
Cash    33,264.00
April 30, 2022 Interest Expense      4,422.72
Interest Payable      4,422.72
(240,000 - 18,6=864) x 6% x 4/12)
Dec 31, 2022 Interest Expense      8,845.44
Interest Payable      4,422.72
Note Payable    19,995.84
Cash    33,264.00

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