On December 31, 2010, ABC Corporation purchased a building costing $300,000, sig

Question

On December 31, 2010, ABC Corporation purchased a building costing $300,000, signing a 10%, 5-year mortgage note payable on December 31, 2016. Five ANNUAL payments will be made each year to pay back the mortgage beginning on December 31, 2011.

What is the annual installment payment required at a 10% rate?

Give the general journal entry to record the purchase of the building

Prepare an effective interest amortization table for the five years

Give the general journal entries to record each of the five mortgage payments beginning on December 31, 2011.

Explanation / Answer

Ans.

Annual Installment 79139.25

General Journal Entries

Date

Particular

Debit

Credit

31.12.2010

Building A/c

         To Mortgage Note Payable

$ 300000.00

$ 300000.00

31.12.2011

Interest on Mortgage Note Payable

           To Mortgage Note Payable

$ 30000.00

   $ 30000.00

31.12.2011

Mortgage Note Payable

             To Cash/Bank

$ 79139.25

    

    $ 79139.25

31.12.2012

Interest on Mortgage Note Payable

           To Mortgage Note Payable

$ 25086.075

   $ 25086.075

31.12.2012

Mortgage Note Payable

             To Cash/Bank

$ 79139.25

    

    $ 79139.25

31.12.2013

Interest on Mortgage Note Payable

           To Mortgage Note Payable

$ 19680.76

   $ 19680.76

31.12.2013

Mortgage Note Payable

             To Cash/Bank

$ 79139.25

    

    $ 79139.25

31.12.2014

Interest on Mortgage Note Payable

           To Mortgage Note Payable

$ 13734.91

   $ 13734.91

31.12.2014

Mortgage Note Payable

             To Cash/Bank

$ 79139.25

    

    $ 79139.25

31.12.2015

Interest on Mortgage Note Payable

           To Mortgage Note Payable

$ 7194.47

   $ 7194.47

31.12.2015

Mortgage Note Payable

             To Cash/Bank

$ 79139.21

    

    $ 79139.21

Mortgage Loan payment schedule(effective interest amortization table)

Year

Opening Outstanding

Installment

Principal

Interest

Balance

2011

300000.00

79139.25

49139.25

30000.00

250860.75

2012

250860.75

79139.25

54053.18

25086.08

196807.58

2013

196807.58

79139.25

59458.49

19680.76

137349.08

2014

137349.08

79139.25

65404.34

13734.91

71944.74

2015

71944.74

79139.21

71944.74

7194.47

0.00

Factor 3.7908 @ 10% for 5 Years (1/1.10, 5times)

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