Question

On December 1, 2018, Driscoll, Inc. signed a 20 year mortgage in the amount of $300,000 in conjunction with the purchase of an office building. This note is payable in equal monthly installments of $1,980 which include interest computed at an annual rate of 5%. The first annual payment is made on December 31, 2018.

Prepare an amortization table for the first two payments.

How much of the first payment made on December 31, 2018, is allocated to repayment of principal?$_______________

With respect to this note, Driscoll's December 2018 income statement includes interest expense of $_______________

With respect to this note, Driscoll's January 2019 monthly income statement includes interest expense of $_______________

Driscoll's balance sheet at December 31, 2018 includes a total liability for this mortgage payable of (Do not separate into current and long-term portions.) $ _______________

The aggregate annual cash payments Driscoll will make over the 20 year life of the mortgage payable amount to $________________

Over the 20 year life of the mortgage, the amount Driscoll will pay for interest amounts to $_______________

Answer 1

Solution 1:

Loan Amortization schedule
Date	Installment Paid	Interest	Reduction of Principal	Carrying value of note
1-Dec-18				$300,000.00
31-Dec-18	$1,980.00	$1,250.00	$730.00	$299,270.00
31-Jan-19	$1,980.00	$1,247.00	$733.00	$298,537.00

Solution 2:

How much of the first payment made on December 31, 2018, is allocated to repayment of principal = $730

Solution 3:

With respect to this note, Driscoll's December 2018 income statement includes interest expense of  = $1,250

Solution 4:

With respect to this note, Driscoll's January 2019 monthly income statement includes interest expense of = $1,247

Solution 5:

Driscoll's balance sheet at December 31, 2018 includes a total liability for this mortgage payable of = $299,270

Solution 6:

The aggregate annual cash payments Driscoll will make over the 20 year life of the mortgage payable amount to = $1,980*12*20 = $475,200

Solution 7:

Over the 20 year life of the mortgage, the amount Driscoll will pay for interest amounts to = Total aggregate payments - Mortgage amount

= $475,200 - $300,000 = $175,200