On January 1, 2021, Stoops Entertainment purchases a building for $610,000, paying $110,000 down and borrowing the remaining $500,000, signing a 9%, 15-year mortgage. Installment payments of $5,071.33 are due at the end of each month, with the first payment due on January 31, 2021.

a. Record the first monthly morgage payment on January 31, 2020.

January 31

Interest expense 3750 (Dr.)

Notes payable 1321.33 (Dr.)

Cash 5071.33 (Cr.)

Explanation:

Purchase price = $610,000

Down payment = $110,000

Borrowing = $500,000

Period = 15 years

Rate = 9%

Installment Payment per month = $5,071.33

With first payment due on January 31, 2020;

Mortgage amount or carrying value = $500,000

Interest = 0.09 * (1/12) * 500,000 = $3,750

Monthly payment = $5,071.33

Decrease in carrying value or mortgage amount = $5071.33 - $3750 = $1321.33

January 31

Interest expense 3750 (Dr.)

Notes payable 1321.33 (Dr.)

Cash 5071.33 (Cr.)