A company takes out a four-year, $810,000 mortgage on May 1. The interest rate o
ID: 2515076 • Letter: A
Question
A company takes out a four-year, $810,000 mortgage on May 1. The interest rate on the loan is 5% per year, and blended payments of $18,654 (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:
(b)
Prepare the journal entries to record the inception of the loan and the first two monthly payments. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)
Date
Account Titles and Explanation
Debit
Credit
May 1
May 31
Jun. 30
Beginning LoanBalance Payment Interest Principal Ending Loan
Balance Payment 1 810,000 18,654 3,375 15,279 794,721 Payment 2 794,721 18,654 3,311 15,343 779,378 Payment 3 779,378 18,654 3,247 15,407 763,971 Payment 4 763,971 18,654 3,183 15,471 748,500
Explanation / Answer
Answer
Date
Account Titles and Explanation
Debit
Credit
May-01
Cash
$810000
Loan
$810000
(loan taken for $810,000)
May-31
Interest expense
$3375
Loan
$15279
Cash
$18654
(first payment made as per table)
Jun-30
Interest expense
$3311
Loan
$15343
Cash
$18654
(second payment made as per table)
Date
Account Titles and Explanation
Debit
Credit
May-01
Cash
$810000
Loan
$810000
(loan taken for $810,000)
May-31
Interest expense
$3375
Loan
$15279
Cash
$18654
(first payment made as per table)
Jun-30
Interest expense
$3311
Loan
$15343
Cash
$18654
(second payment made as per table)
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