Kessel Company purchased a building and land with a fair market value of mortgag

Question

Kessel Company purchased a building and land with a fair market value of mortgage Read the tequirements payable. Kessel will make monthly payments of $6,637 20. Round to two decimal places, Explanations are not required for journal entries S60 000 ing, s37 000 and land $225 00 on Ja ry 1 2018. Kessel s gned a 30-year, 13% mortgage payable issuance on January 1.2018. Record debils first, then credits. Exclade explanations from any journal enthies) Date 2018 Jan. 1 Accounts Debit Credit hoose from any list or enter any number in the input fields and then continue to the next question Type here to search 0

Explanation / Answer

In a mortgage process the borrowing and receipt of cash is recorded with an increase (debit) to cash and an increase (credit) to mortgage payable. When a payment is made, mortgage payable is decreased (debited) for the principal portion of the payment, interest expense is increased (debited) for the interest portion of the payment, and cash is decreased (credited) by the payment amount of the above total (principal + interest). The interest portion of the first payment is calculated by multiplying the principal balance times the interest rate times 1/ 12 because payments are made monthly.

So similarly, in this case

In this case Interest=6,00,000*13%*1/12=6,500

Finally, principal amount included in the installment is 6,637.20-6,500=137.20.

Therefore, Journal entry for January 1st is

Mortgage payable a/c Dr     137.20

Interest expense a/c Dr        6,500

                         To Cash a/c                 6,637.20

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