Question

On January 1, 2021, Gundy Enterprises purchases an office building for $316,000, paying $56,000 down and borrowing the remaining $260,000, signing a 8%, 10-year mortgage. Installment payments of $3,154.52 are due at the end of each month, with the first payment due on January 31, 2021.Part 1Required: Record the purchase of the building on January 1, 2021Part 2Complete the first three rows of an amortization schedule.Part 3
Required:
a. Record the first monthly mortgage payment on January 31, 2021b. How much of the first payment goes to interest expense and how much goes to reducing the carrying value of the loan?4. Total payments over the 10 years are $378,542 ($3,154.52 × 120 monthly payments). How much of this is interest expense and how much is actual payment of the loan?

Answer 1

Total Payments      $378,542.00

Actual Payment on loan     $260,000.00

Interest Expenses          $118,542.00

Explanation

Date           General Journal            Debit            credit

1-Jan-18

                          Office                      $316,000

                             Cash                                              $56,000

                       Mortgage Payable                             $260,000

                (To record buying office)

2.  Amortization Schedule:

Date         Cash Paid         interest expense    Decrease in            Carrying

                                                                           value                         value

1/1/2018          0                        0                             0                          260000

1/31/2018        3154.52           1733.33                  1421.19                  258578.81

2/28/2018      3154.52          1723.86                 1430.66                  257148.15

Date     General Journal                   Debit                    Credit

1-Jan-18

             Mortgage Payable   $1,421.19

                    Interest expenses   $1,733.33

                            Cash                                                 $3,154.52

(To record first month payments)

          Interest Expenses                      Reducing the carrying value

First Payment   $1,733.33                                         $1,421.19

4. Total Payments      $378,542.00

Actual Payment on loan     $260,000.00

Interest Expenses          $118,542.00