Question

Problem 15-4A Talkington Electronics issues a $423,500, 4%, 15-year mortgage note on December 31, 2016. The proceeds from the note are to be used in financing a new research laboratory. The terms of the note provide for annual installment payments, exclusive of real estate taxes and insurance, of $52,214. Payments are due on December 31. Prepare an installment payments schedule for the first 4 years. (Round answers to 0 decimal places, e.g. 15,250.) Annual Interest Period Cash Payment Interest Expense Reduction of Principal Principal Balance Issue Date $ 1 $ $ $ 2 3 4 Link to Text Link to Text Prepare the entries for (1) the loan and (2) the first installment payment. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 15,250.) Date Account Titles and Explanation Debit Credit Dec. 31, 2016 Dec. 31, 2017 Link to Text Link to Text Show how the total mortgage liability should be reported on the balance sheet at December 31, 2017. (Enter account name only and do not provide descriptive information. Round answers to 0 decimal places, e.g. 15,250.) Talkington Electronics Balance Sheet (Partial) $ $

Answer 1

Solution:

Loan amount = $423,500

Interest rate = 4%

Mortgage period =15 years

Annual installment = Loan amount / cumulative PV Factor at 4% for 15 periods

= $423,500 / 11.11839 = $38,090

Loan Installment Table - Takingtong Electronics
Date	Beginning balance	Cash Payment	Interest	Principal	Ending Balance
31-Dec-16					$423,500
31-Dec-17	$423,500	$38,090	$16,940	$21,150	$402,350
31-Dec-18	$402,350	$38,090	$16,094	$21,996	$380,354
31-Dec-19	$380,354	$38,090	$15,214	$22,876	$357,478
31-Dec-20	$357,478	$38,090	$14,299	$23,791	$333,687

Journal Entries - Takingtong Electronics
Date	Particulars	Debit	Credit
31-Dec-16	Cash Dr	$423,500.00
	To Notes Payable		$423,500.00
	(Being note issued and amount borrowed)
31-Dec-17	Interest Expense Dr	$16,940.00
	Notes Payable Dr	$21,150.00
	To Cash		$38,090.00
	(Being interest expense recorded and payment of installment)

Balance Sheet (Partial)
As on 31.12.2017
Takingtong Electronics
Particulars	Amount
Note Payable:
Current	$21,996.00
Non Current	$380,354.00
Total	$402,350.00