On January 1, 2018, Gundy Enterprises purchases an office for $173,000, paying $43,000 down and borrowing...

On January 1, 2018, Gundy Enterprises purchases an office for $173,000, paying $43,000 down and borrowing the remaining $130,000, signing a 9%, 10-year mortgage. Installment payments of $1,646.79 are due at the end of each month, with the first payment due on January 31, 2018

Required:

3-a. Record the first monthly mortgage payment on January 31, 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Round your final answers to 2 decimal places.)

3-b. How much of the first payment goes to interest expense and how much goes to reducing the carrying value of the loan? (Round your answers to 2 decimal places.)

4. Total payments over the 10 years are $197,615 ($1,646.79 × 120 monthly payments). How much of this is interest expense and how much is actual payment of the loan?

Expert Solution

All working forms part of the answer
Requirement 3 ‘a’

Date	Accounts title	Debit	Credit	Working
31-Jan-18	Interest expense	$ 975.00		[$ 130,000 x 9% x 1/12]
	Mortgage Payable	$ 671.79		[$ 1,646.79 - $ 975]
	Cash		$ 1,646.79	[Cash paid]
	(first monthly payment made)

Requirement 3 ‘b’

Payments for Interest expense	$ 975.00
Payments for Carrying value of loan	$ 671.79

Requirement 4

A	Total payments over 10 years	$ 197,615.00
B	Mortgage payable	$ 130,000.00
C = A - B	Interest expense over 10 years	$ 67,615.00
D = A - C or D = B	Actual payment of the loan	$ 130,000.00

ekkarill92 answered 1 year ago

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