Question

On December 31, 2009, Thomas, Inc. borrowed $1,120,000 on a 12%, 15-year mortgage note payable. The note is to be repaid in equal semiannual installments of $81,366 (payable on June 30 and December 31). Prepare journal entries to reflect (a) the issuance of the mortgage note payable, (b) the payment of the first installment on June 30, 2010, and (c) the payment of the second installment on December 31, 2010. Round amounts to the nearest dollar.

Answer 1

Journal

Date	Account title	Debit	Credit
Dec. 31, 2009	Cash	1,120,000
	Mortgage note payable		1,120,000
June 30, 2010	Mortgage note payable
	Interest expense	67,200
	Cash		81,366
Dec. 31, 2010	Mortgage note payable	15,016
	Interest expense	66,350
	Cash		81,366

Interest expense to be paid on June 30, 2010 = 1,120,000 x 12/100 x 6/12

= $67,200

Hence, principal included in the first installment = 81,366 - 67,200

= $14,166

Interest expense to be paid on Dec. 31 30, 2010 = (1,120,000 - 14,166) x 12/100 x 6/12

= $66,350

Hence, principal included in the second installment = 81,366 - 66,350

= $15,016

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