A company takes out a four-year, $860,000 mortgage on May 1. The interest rate o
ID: 2448180 • Letter: A
Question
A company takes out a four-year, $860,000 mortgage on May 1. The interest rate on the loan is 5% per year, and blended payments of $19,805 (including both interest and principal) are to be made at the end of each month. The following is an extract from the loan amortization table the bank provided the company:
Prepare the journal entries to record the inception of the loan and the first two monthly payments.
Balance Payment Interest Principal Ending Loan
Balance Payment 1 860,000 19,805 3,583 16,222 843,778 Payment 2 843,778 19,805 3,516 16,289 827,489 Payment 3 827,489 19,805 3,448 16,357 811,132 Payment 4 811,132 19,805 3,380 16,425 794,707
Explanation / Answer
Answer :
May 1
Bank Account Dr. 860000
to Term Loan Account 860000
(being amount of term loan received)
31 May
Term Loan Account Dr. 16222
Interest Expense A/c Dr. 3583
to Bank Account 19805
(being first installment paid)
30 June
Term Loan Account Dr. 16289
Interest Expense A/c Dr. 3516
to Bank Account 19805
(being second installment Paid)
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