Answer:
See the journal entries below.
Explanation:
The journal entries will look as follows:
<u>Date Description Debit ($) Credit ($) </u>
31 Dec 20 Cash 343,800
Mortgage note payable 343,800
<u><em> (To record the issue of mortgage note.) </em></u>
31 Dec 21 Interest expense (w.1) 34,380
Mortgage note payable (w.2) 22,920
Cash 57,300
<u><em> (To record the first annual installment on Mortgage note.) </em></u>
31 Dec 22 Interest expense (w.4) 32,088
Mortgage note payable (w.5) 25,212
Cash 57,300
<u><em> (To record the second annual installment on Mortgage note.) </em></u>
Workings:
w.1. Interest expense on December 31, 2021 = Mortgage loan amount * Interest rate = $343,800 * 10% = $34,380
w.2. Principal paid on December 31, 2021 = Annual installment payments - Interest expense on December 31, 2021 = $57,300 - $34,380 = $22,920
w.3 Mortgage loan balance on December 31, 2021 = Mortgage loan amount - Principal paid on December 31, 2021 = $343,800 - $22,920 = $320,880
w.4. Interest expense on December 31, 2022 = Mortgage loan balance on December 31, 2021 * Interest rate = $320,880 * 10% = $32,088
w.5. Principal paid on December 31, 2022 = Annual installment payments - Interest expense on December 31, 2022 = $57,300 - $32,088 = $25,212
