Pina Colada Corp. receives $180,000 when it issues a $180,000, 9%, 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

Answer and Explanation:

The Journal entry is shown below:-

Dec 2019 Cash Dr, $180,000

To Mortgage Payable $180,000

(Being mortgage loan taken is recorded)

Dec 2020 Interest expenses Dr,$16,200

Mortgage Payable Dr, $13,800

To Cash $30,000

(Being first installment payment is recorded)

Dec 2021 Interest expenses Dr,$14,742

Mortgage Payable Dr, $15,258

To Cash $30,000

(Being second installment payment is recorded)

Working note:-

For 2020 Interest expenses = $180,000 * 9%

= $16,200

Mortgage payable = $30,000 - $16,200

= $13,800

For 2021 Interest expenses = ($180,000 - $16,200) * 9%

= $14,742

Mortgage payable = $30,000 - $14,742

= $15,258