Question

On January 1, 2021, Gundy Enterprises purchases an office building for $151,000, paying $41,000 down and borrowing the remaining $110,000, signing a 7%, 10-year mortgage. Installment payments of $1,277.19 are due at the end of each month, with the first payment due on January 31, 2021.
Required:

a. Record the first monthly mortgage payment on January 31, 2021. (If no entry is required for a particular 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.)

Answer 1

Answer:

Dr mortgage payable  $635.52

Dr interest expense     $641.67

Cr cash                                         $1,277.19

Explanation:

The first repayment made on the mortgage is $1,277.19,this amount can be broken into interest payment on the mortgage as well as the repayment of the principal of $110,000.

interest for first month=$110,000*7%*1/12=$641.67  

Invariably the payment made comprises of $635.52  ($1,277.19-$641.67) principal repayment and interest payment of $641.67

The entries would to debited mortgage payable with $635.52 and interest expense with  $641.67 while cash is credited with $1,277.19