Question

Keel Company purchased a building and land with a fair market value of $650,000 (building, $500,000 and land, $150,000) on January 1, 2018. Keel signed a 20-year, 8% mortgage payable. Keel will make monthly payments of $5,436.86. Round to two decimal places. Explanations are not required for journal entries. Read the requirements. Requirement 1. Journalize the mortgage payable issuance on January 1, 2018. (Record debits first, then credits. Exclude explanations from any journal entries.) Date Accounts Debit Credit 2018 Jan. 1 * Requirements Building Land Mortgage Payable 500,000.00 150,000.00 650,000.00 1. Journalize the mortgage payable issuance on January 1, 2018. 2. Prepare an amortization schedule for the first two payments. 3. Journalize the first payment on January 31, 2018. 4. Journalize the second payment on February 28, 2018. Requirement 2. Prepare an amortization schedule for the first two payments. (Round all numbers to the nearest cent.) Principal Payment Interest Expense Total Payment Ending Balance Print Done Beginning Balance 1/1/2018 1/31/2018 $ 650,000.00 2/28/2018

Please answer all parts!

Answer 1

Solution: Debit Credit Q1 Part 1: Date Accounts 2018 Jan 1. Building Land Mortgage payable 500,000.00 150,000.00 650,000.00 Part 2: Beg. Bal 1/1/2018 1/31/2018. 2/28/2018. Principal payment Interest expense Total Payment Ending bal. b=d-c c=2*8%*1/12 d e=a-d 650,000.00 1,103.53 4,333.33 5,436.86 648,896.47 1,110.88 4,325.98 5,436.86 647,785.59 650,000.00 648,896.47 Debit Credit Part 3: Date Accounts 2018 Jan 31. Interest expense Mortgage payable cash 4,333.33 1,103.53 5436.86 Debit Credit Part 4: Date Accounts 2018 Feb 28. Interest expense Mortgage payable cash 4,325.98 1,110.88 5436.86

Solution: Debit Credit Q2 Part 1: Date Accounts 2018 Jan 1. Cash Bonds payable 100,000.00 100,000.00 2018 Jul 1. 4,000.00 Interest expense cash (100000*8%*6/12) 4,000.00 Debit Credit Part 2: Date Accounts 2018 Jan 1. Cash=100000*0.94 Discount on bonds payable Bonds payable 94,000.00 6,000.00 100,000.00 4,300.00 2018 Jul 1. Interest expense Discount on bonds payable=6000/20 cash=(100000*8%*6/12) 300.00 4,000.00 FF FF FF Accounts Debit Credit Part 3: Date 2018 Jan 1. 104,000.00 Cash=100000*1.04 Bonds payable Premium on bonds payable 100,000.00 4,000.00 2018 Jul 1. Interest expense Premium on bonds payable=4000/20 cash=(100000*8%*6/12) 3,800.00 200.00 4,000.00 Part 4: Total interest expense when bonds are issued at working Face value 100000*8%*10 Discount 100000*8%*10+6000 Premium 100000*8%*10-4000 Interest expense 80000 86000 76000 Hence when bonds are issued at discount i.e at 940 (1000*94%) results in most interest expense.