On 12/31/2013, Thomas borrowed $700,000 on a 12%, 15 year mortgage note payable.

Question

On 12/31/2013, Thomas borrowed $700,000 on a 12%, 15 year mortgage note payable.  The note is to be repaid in equal semiannual installments of $50854 (payable on June 30 and December 31).

Prepare the journal entries to record:

- the issuance of the mortgage note payable.  I think I have that one.

Cash                                   $700,000

     Note payable                                $700,000

- the payment of the first installment on june 30, 2014.  I think I understand the accts, just don't know how to figure out the principle and interest.

Interest expense                xxxx

Note payable                     xxxx

     Cash                                             $50,854 (think this is correct)

Explanation / Answer

Prepare the journal entries to record:

- the issuance of the mortgage note payable.

Cash $700,000

Note payable $700,000

- the payment of the first installment on june 30, 2014. I think I understand the accts, just don't know how to figure out the principle and interest.

Interest Expenses = 700000*12%*1/2 = $42000

So Principal payment = 50854-42000 = $8854

Interest expense $42000

Note payable $8854

Cash $50,854

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