Question

Roxy Inc. issues a $1,500,000, 10%, 10-year mortgage note on December 31, 2018, to obtain financing for a new building. The terms provide for annual installment payments of $244,118. Prepare the entry to record the mortgage loan on December 31, 2018, and the first installment payment on December 31, 2019.

Answer 1

Answer:

See the journal entries below.

Explanation:

The journal entries will look as follows:

Date                Particulars                                     Debit ($)            Credit ($)   

31 Dec 2018    Cash                                            1,500,000

                           Mortgage payable                                             1,500,000

                        (To record $1,500,000, 10%, 10-year mortgage note issued.)

31 Dec 2018    Mortgage payable (w.2)                   94,118

                        Interest exp. on Mortgage (w.1)   150,000

                           Cash                                                                      244,118

                       (To record first installment payment on mortgage note.)       

Workings:

w.1. Interest expense on Mortgage = Mortgage payable * Interest rate =  $1,500,000 * 10% = $150,000

w.2. Mortgage note principal repaid = Annual installment payment - w.1 = $244,118 - $150,000 = $94,118