Glen Pool Club, Inc., has a $150,000 mortgage liabilty. The mortgage is payable
ID: 2389394 • Letter: G
Question
Glen Pool Club, Inc., has a $150,000 mortgage liabilty. The mortgage is payable in monthly installments of $1,543 , which include interest computed at an annual rate of 12 percent (1 percent monthly). Prepare a partial amortization table showing (1) the original balance of this loan, and (2) the allocation of the first two monthly payments between interest expense and the reduction in the mortgage`s unpaid balance. Prepare the journal entry to record the second monthly paymment. Will monthly interest increase, decrease or stay the same over the life of the loan? Explain.Explanation / Answer
Beg. Balance
payment
Interest allocation
allocation to balance
ending bal.
150,000.00
1,543.00
1,500.00
43.00
149,957.00
149,957.00
1,543.00
1,499.57
43.43
149,913.57
Journal entry:
Debit: Interest expense 1499.57
Debit: Mortgage payable 43.43
Credit: Cash 1543.00
Monthly interest will decrease over the life of the loan. Interest is found by taking the unpaid balance times the interest rate. As the unpaid balance deceases, so will the interest.
Beg. Balance
payment
Interest allocation
allocation to balance
ending bal.
150,000.00
1,543.00
1,500.00
43.00
149,957.00
149,957.00
1,543.00
1,499.57
43.43
149,913.57
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