Question

Problem 14 On June 30, 20X7, real estate was purchased with a 15-year mortgage of $270,000. The terms of the mortgage were monthly payments of $1,500 on the principal and 12 percent interes

Answer 1

(a) Mortgage Balance as on June 30, 20X7 : $270,000

Explanation: The mortgage is signed on June 30, 20X7 i.e. the liability is booked as on that date. However, the payments are to made starting form the next month. Therefore, The complete mortgage amount of $270,000 is outstanding as on that date.

(b) Mortgage Balance as on July 31, 20X7 : $268,500

Explanation: On July 31, 20X7 first repayment on mortgage amounting to $1,500 on principal and 1% as interest (12% interest annually i.e. 1% interest monthly) is paid. This reduces the amount of mortgage liability by $1,500. Therefore outstanding liability of mortgage s on that date will be $268,500 (i.e. $270,000 - $1,500)

(c) Mortgage Balance as on June 30, 20X8 : $252,000

Explanation: as on June 30, 20X8 a total of 12 installments amounting to $18,000 (i.e. $1,500 * 12 months) on principal and interest @ 12% has been paid for mortgage. Therefore outstanding balance of mortgage is $252,000 (i.e. $270,000 - $18,000)