Monty Corp. receives $180,000 when it issues a $180,000, 10%, mortgage note payable to finance the construction of a building at December 31, 2019. The terms provide for annual installment payments of $30,000 on December 31. Prepare the journal entries to record the mortgage loan and the first two payments. (Round answers to 0 decimal places, e.g. 15,250. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Installment of Mortgage loan includes the interest expense and principal value. As Cash of $180,000 received, so we need to debit the cash with this value. On the other hand there is a liability arise from this event. A mortgage payable account will be credited because it has credit nature.

First Loan Payment

Installment Payment = $30,000

Interest portion of Installment = $180,000 x 10% = $18,000

Interest portion of Installment = $30,000 - $18,000 = $12,000

First Loan Payment

Installment Payment = $30,000

Interest portion of Installment = ($180,000-12,000) x 10% = $16,800

Interest portion of Installment = $30,000 - $16,800 = $13,200

Tundexi Tundexi · Answer 2 · 2021-12-30T13:26:16+01:00

First Loan Payment

Installment Payment = $30,000

Interest portion of Installment = $180,000 x 10%

Interest portion of Installment = $18,000

Interest portion of Installment = $30,000 - $18,000

Interest portion of Installment = $12,000

Second Loan Payment

Installment Payment = $30,000

Interest portion of Installment = ($180,000-12,000) x 10%

Interest portion of Installment = $16,800

Interest portion of Installment = $30,000 - $16,800

Interest portion of Installment = $13,200

Date Account titles Debit Credit

Dec 31, 2019 Cash $180,000

Mortgage Payable $180,000

Dec 31, 2020 Mortgage Payable $12,000

Interest Expense $18,000

Cash $30,000

Dec 31, 2021 Mortgage Payable $13,200

Interest Expense $16,800

Cash $30,000

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