Question

On January 1, 2021, Gundy Enterprises purchases an office building for $305,000, paying $55,000 down and borrowing the remaining $250,000, signing a 9%, 10-year mortgage. Installment payments of $3,166.89 are due at the end of each month, with the first payment due on January 31, 2021. Required: 1. Record the purchase of the building on January 1, 2021.2. Complete the first three rows of an amortization schedule.
3-a. Record the first monthly mortgage payment on January 31, 2021.
3-b. How much of the first payment goes to interest expense and how much goes to reducing the carrying value of the loan?

Answer 1

Answer:

1.                           Debit           Credit  

1/1/2021

Buildings  $305,000    

Cash              $55,000  

Mortgage payable      $250,000

2. Date     Cash paid interest  expense decrease in CV Carrying value          

1/1/2021                                                                 $250,000    

1/31/2021     $3,166.89    $1875.00         $1,291.89      $248,708.11    

2/28/2021   $3,166.89    $1865.31         $1301.58             $247,406.53

3 a.                           Debit Credit  

12/31/2021

interest expense   $1,875    

mortgage payable   $1,291.89    

cash                        $3,166.89

3 b. The amount of firts payment that goes to interest expense is 1,875 and to reduce the cv is $1,291.89

Explanation:

1. The purchase of the building on January 1, 2021 would be record as follows:

                         Debit           Credit  

1/1/2021

Buildings  $305,000    

Cash              $55,000  

Mortgage payable      $250,000

2. The first three rows of an amortization schedule would be as follows:

Date     Cash paid interest  expense decrease in CV Carrying value          

1/1/2021                                                                 $250,000    

1/31/2021     $3,166.89    $1875.00         $1,291.89      $248,708.11    

2/28/2021   $3,166.89    $1865.31         $1301.58             $247,406.53

3 a. The first monthly mortgage payment on January 31, 2021 record would be as follows:

                         Debit Credit  

12/31/2021

interest expense   $1,875    

mortgage payable   $1,291.89    

cash                        $3,166.89

3 b.  

The amount of firts payment that goes to interest expense is 1,875 and to reduce the cv is $1,291.89