Question

On January 1 of Year 1, Kylie Ramona borrowed $250,000 under a mortgage note payable contract. The annual interest rate on this mortgage is 6% compounded monthly. (Hint: “6% compounded monthly” means, by definition, 0.5% each month.] This is a 30-year, fully-amortizing monthly mortgage. The monthly payments are $1,498.88 and are due at the end of each month, starting on January 31 of Year 1. Which ONE of the following is included in the journal entry made by Kylie Ramona on January 31 of Year 1 to record the payment in cash of $1,498.88? ODEBIT to Mortgage Note Payable for $1,250.00 ODEBIT to Mortgage Note Payable for $248.88 ODEBIT to Interest Expense for $248.88 ODEBIT to Mortgage Note Payable for $1,498.88 ODEBIT to Interest Expense for $1,498.88

Answer 1

Mortgage note payable balance on January 1, Year 1 = $250,000

Monthly interest rate = 0.5%

Interest expense for January, Year 1 = Mortgage note payable balance on January 1, Year 1 x Monthly interest rate

= 250,000 x 0.5%

= $1,250

Monthly payment = $1,498.88

Principal payment of mortgage note payable on January 31, Year 1 = Monthly payment - Interest expense for January, Year 1

= 1,498.88-1,250

= $248.88

On January 31, Year 1, Following entry will be made:

Date	General Journal	Debit	Credit
January 31, Year 1	Mortgage note payable	$248.88
	Interest expense	$1,250
	Cash		$1,498.88

Second option is correct option.

Kindly comment if you need further assistance.

Thanks‼!