Question

Hanschu Inc. issues an $800,000, 10%, 10-year mortgage note on December 31, 2019, to obtain financing for a new building. The terms provide for annual installment payments of $130,196. Prepare the entry to record the mortgage loan on December 31, 2019, and the first installment payment on December 31, 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Record journal entries in the order presented in the problem.)

Answer 1

Answer:

For mortgage loan:

Dr cash      $800,000

Cr mortgage payable     $800,000

Repayment of $130,196

Dr interest expense  $80,000

Dr mortgage payable $50,196

Cr cash                                          $130,196

Explanation:

The repayment of $130,196 comprises of both principal repayment and interest payment.

Interest payment=mortgage amount*rate of interest

mortgage amount is $800,000

rate of interest is 10%

interest payment=$800,000*10%=$80,000

Principal repayment=$130,196-$80,000=$50,196