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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脳rate脳timeperiod=$550,000脳6%112=$2,750

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Most popular questions from this chapter

Reporting liabilities on the balance sheet and computing debt toequity ratio

The accounting records of Compass Wireless include the following as of December31, 2018:

Accounts Payable \( 74,000 Salaries Payable \) 7,500

Mortgages Payable (long-term) 80,000 Bonds Payable (current portion) 25,000

Interest Payable 21,000 Premium on Bonds Payable 13,000

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

Total Stockholders鈥� Equity 145,000

Requirements

1. Report these liabilities on the Compass Wireless balance sheet, including headingsand totals for current liabilities and long-term liabilities.

2. Compute Compass Wireless鈥檚 debt to equity ratio at December 31, 2018.

Analyzing, journalizing, and reporting bond transactions

Danny鈥檚 Hamburgers issued 6%, 10-year bonds payable at 90 on December 31, 2018.

At December 31, 2020, Danny reported the bonds payable as follows:

Long-term Liabilities:

Bonds Payable \( 600,000

Less: Discount on Bonds Payable (48,000) \) 552,000

Danny鈥檚 pays semiannual interest each June 30 and December 31.

Requirements

1. Answer the following questions about Danny鈥檚 bonds payable:

a. What is the maturity value of the bonds?

b. What is the carrying amount of the bonds at December 31, 2020?

c. What is the semiannual cash interest payment on the bonds?

d. How much interest expense should the company record each year?

2. Record the June 30, 2020, semiannual interest payment and amortization of

discount.

What type of account is Discount on Bonds Payable? What is its average balance? Is it added to or subtracted from the Bonds Payable charge to determine the carrying amount?

When a bond is issued, what is its present value?

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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