Question

P10-4A Starlight Graphics Ltd. signed a 10-year, 6.5%, $700,000 mortgage on June 30, 2017, to help finance a new research laboratory. The mortgage terms provide for semi-annual blended principal and interest payments of $48,145. Payments are due on December 31 and June 30. The company's year-end is June 30. Instructions (a) Prepare an instalment payment schedule for the first two years. Round all amounts to the nearest dollar. (b) Record the receipt of the mortgage loan on June 30, 2017. (c) Record the first two instalment payments, on December 31, 2017, and June 30, 2018. (d) Show the statement of financial position presentation of the mortgage payable at June 30, 2018.

Answer 1

Solution a:

Amortization table - Installment Note
Date	Installment amount	Interest expense	Reduction in carrying value	Carrying amount of note
30-Jun-17				$700,000
31-Dec-17	$48,145	$22,750	$25,395	$674,605
30-Jun-18	$48,145	$21,925	$26,220	$648,385
31-Dec-18	$48,145	$21,073	$27,072	$621,312
30-Jun-19	$48,145	$20,193	$27,952	$593,360

Solution b:

Journal Entries - Starlight Graphics Ltd
Date	Particulars	Debit	Credit
30-Jun-17	Cash Dr	$700,000.00
	To Notes Payable		$700,000.00
	(To record receipt of mortgage loan)

Solution c:

Journal Entries - Starlight Graphics Ltd
Date	Particulars	Debit	Credit
31-Dec-17	Interest expense Dr	$22,750.00
	Notes Payable Dr	$25,395.00
	To Cash		$48,145.00
	(To record installment payment)
30-Jun-18	Interest expense Dr	$21,925.00
	Notes Payable Dr	$26,220.00
	To Cash		$48,145.00
	(To record installment payment)

Solution d:

Starlight Graphics Ltd
Balance sheet (Partial)
As on June 30, 2018
Particulars	Amount
Current liabilities:
Mortgage note payable	$55,025.00
Long term liabilities:
Mortgage note payable	$593,360.00