Question

On December 1, Year 1, Bradley Corporation incurs a 15-year $200,000 mortgage liability in conjunction with the acquisition of an office building. This mortgage is payable in monthly installments of $2,400, which include interest computed at the rate of 12% per year. The first monthly payment is made on December 31, Year 1. The total liability related to this mortgage reported in Bradley's balance sheet at December 31, Year 1, is:

Answer 1

Answer:

The amount in the account Mortgage Loan Payable should be the principal amount owed to the lender. Any interest due should be considered as Interest Payable and is to be shown under current liability.

Therefore, Total liability related to this mortgage reported in Bradley's balance sheet at December 31, Year 1,

= Total principal amount of Mortgage liability - Principal amount paid

= $200,000 - (Installment -Interest)

= $200,000 - ($2,400 - ($200,000*12/100*1/12)

= $199,600