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Chapter 12: Q19E_2 (page 659)

Preparing an amortization schedule and recording mortgages payable

entries

Kellerman Company purchased a building and land with a fair market value of

\(550,000 (building, \)425,000, and land, \(125,000) on January 1, 2018. Kellerman

signed a 20-year, 6% mortgage payable. Kellerman will make monthly payments of

\)3,940.37. Round to two decimal places. Explanations are not required for journal

entries.

Requirements

1. Journalize the mortgage payable issuance on January 1, 2018.

2. Prepare an amortization schedule for the first two payments.

3. Journalize the first payment on January 31, 2018.

4. Journalize the second payment on February 28, 2018.

Short Answer

Expert verified

The amount of the principal in the first payment is $1,190.37

Step by step solution

01

Definition of mortgage payable

The mortgage payable is a type of long-term debt backed by a security.

02

Amortization schedule of mortgage payable

Date

Beginning Balance

Principal Payment

Interest Expense

Ending Balance

01/01/2018

$550,000

01/31/2018

$550,000

$1,190.37

$2,750

$548,809.63

02/28/2018

$548,809.63

$1,196.33

$2,744.04

$547,613.30

Interest=principal×rate×timeperiod=$550,000×6%112=$2,750

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Most popular questions from this chapter

Determining the present value of bonds payable and journalizing

using the effective-interest amortization method

Brad Nelson, Inc. issued $600,000 of 7%, six-year bonds payable on January 1, 2018.

The market interest rate at the date of issuance was 6%, and the bonds pay interest

semiannually.

Requirements

1. How much cash did the company receive upon issuance of the bonds payable?(Round to the nearest dollar.)

2. Prepare an amortization table for the bond using the effective-interest method,through the first two interest payments (Round to the nearest dollar.)

3. Journalize the issuance of the bonds on January 1, 2018, and the first and secondpayments of the semiannual interest amount and amortization of the bonds onJune 30, 2018, and December 31, 2018. Explanations are not required.

Where is the current portion of notes payable reported on the balance sheet?

Reporting liabilities on the balance sheet and computing debt toequity ratio. The accounting records of Pack Leader Wireless include the following as ofDecember 31, 2018:

Accounts Payable \( 77,000 Salaries Payable \) 7,500

Mortgages Payable (long-term) 73,000 Bonds Payable (current portion) 25,000

Interest Payable 18,000 Premium on Bonds Payable 10,000

Bonds Payable (long-term) 63,000 Unearned Revenue (short-term) 2,700

Total Stockholders’ Equity 140,000

Requirements

1. Report these liabilities on the Pack Leader Wireless balance sheet, includingheadings and totals for current liabilities and long-term liabilities.

2. Compute Pack Leader Wireless’s debt to equity ratio at December 31, 2018.

Herrera Corporation issued a $400,000, 4.5%, 10-year bond payable on January 1, 2018. Journalize the payment of the bond

payable at maturity. (Give the date.)

Determining the present value of bond at issuance

On December 31, 2018, when the market interest rate is 12%, Benson Realty issues

$600,000 of 9.25%, 10-year bonds payable. The bonds pay interest semi annually.

Determine the present value of the bonds at issuance.
See all solutions

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