On January 1, 2018, Gundy Enterprises purchases an office for $173,000, paying $
ID: 2433103 • Letter: O
Question
On January 1, 2018, Gundy Enterprises purchases an office for $173,000, paying $43,000 down and borrowing the remaining $130,000, signing a 9%, 10-year mortgage. Installment payments of $1,646.79 are due at the end of each month, with the first payment due on January 31, 2018
Required:
3-a. Record the first monthly mortgage payment on January 31, 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Round your final answers to 2 decimal places.)
3-b. How much of the first payment goes to interest expense and how much goes to reducing the carrying value of the loan? (Round your answers to 2 decimal places.)
4. Total payments over the 10 years are $197,615 ($1,646.79 × 120 monthly payments). How much of this is interest expense and how much is actual payment of the loan?
Explanation / Answer
Answers
Date
Accounts title
Debit
Credit
Working
31-Jan-18
Interest expense
$ 975.00
[$ 130,000 x 9% x 1/12]
Mortgage Payable
$ 671.79
[$ 1,646.79 - $ 975]
Cash
$ 1,646.79
[Cash paid]
(first monthly payment made)
Payments for Interest expense
$ 975.00
Payments for Carrying value of loan
$ 671.79
A
Total payments over 10 years
$ 197,615.00
B
Mortgage payable
$ 130,000.00
C = A - B
Interest expense over 10 years
$ 67,615.00
D = A - C or D = B
Actual payment of the loan
$ 130,000.00
Date
Accounts title
Debit
Credit
Working
31-Jan-18
Interest expense
$ 975.00
[$ 130,000 x 9% x 1/12]
Mortgage Payable
$ 671.79
[$ 1,646.79 - $ 975]
Cash
$ 1,646.79
[Cash paid]
(first monthly payment made)
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