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24 April, 01:26

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

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  1. 24 April, 01:32
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    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
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