Asked by Sonia Trelles on May 04, 2024
Verified
Eve Corporation issues a $9000000 5% 20-year mortgage note payable on December 31 2017 to obtain needed financing for the construction of a building addition. The terms provide for annual installment payments of $722183 on December 31.
Instructions
(a) Prepare the journal entries to record the mortgage loan on December 31 2017 and the first installment payment.
(b) Will the amount of principal reduction in the second installment payment be more or less than with the first installment payment?
Mortgage Note Payable
A mortgage note payable is a legal agreement where the borrower promises to repay a debt used to purchase real estate, secured by the property itself.
Construction
Construction refers to the process of building, assembling, or creating infrastructure, buildings, or other substantial physical structures, involving planning, design, and execution phases.
Installment Payments
Payments made regularly over a period of time to settle a debt or purchase price.
- Prepare the accounting entries for the issuing, amortization, and final settlement of bonds and mortgages.
- Assess the principal sums and installment disbursements for mortgage notes.
Verified Answer
BC
Blaine CampbellMay 07, 2024
Final Answer :
(a)
2017 Dec. 31 Cash 9,000,000 Mortgage Payable9,000,0002018Dec. 31 Interest Expense 450,000 Mortgage Payable 272,183 Cash 722,183 ($9,000,000×5%=$450,000) \begin{array}{llr}&&2017&\\ \text { Dec. 31} & \text { Cash } &&&9,000,000\\ &\text { Mortgage Payable} &&&&9,000,000\\\\&&2018\\ \text {Dec. 31 } & \text { Interest Expense } &&&450,000\\& \text { Mortgage Payable } &&&272,183\\& \text { Cash } &&&&722,183\\& \text { \( (\$ 9,000,000 \times 5 \%=\$ 450,000) \) } &\\\end{array} Dec. 31Dec. 31 Cash Mortgage Payable Interest Expense Mortgage Payable Cash ($9,000,000×5%=$450,000) 201720189,000,000450,000272,1839,000,000722,183
(b) The amount of principal reduction will increase with each installment payment.
2017 Dec. 31 Cash 9,000,000 Mortgage Payable9,000,0002018Dec. 31 Interest Expense 450,000 Mortgage Payable 272,183 Cash 722,183 ($9,000,000×5%=$450,000) \begin{array}{llr}&&2017&\\ \text { Dec. 31} & \text { Cash } &&&9,000,000\\ &\text { Mortgage Payable} &&&&9,000,000\\\\&&2018\\ \text {Dec. 31 } & \text { Interest Expense } &&&450,000\\& \text { Mortgage Payable } &&&272,183\\& \text { Cash } &&&&722,183\\& \text { \( (\$ 9,000,000 \times 5 \%=\$ 450,000) \) } &\\\end{array} Dec. 31Dec. 31 Cash Mortgage Payable Interest Expense Mortgage Payable Cash ($9,000,000×5%=$450,000) 201720189,000,000450,000272,1839,000,000722,183
(b) The amount of principal reduction will increase with each installment payment.
Learning Objectives
- Prepare the accounting entries for the issuing, amortization, and final settlement of bonds and mortgages.
- Assess the principal sums and installment disbursements for mortgage notes.