Question

Ember Company purchased a building with a market value of $280,000 and land with a market value of $55,000 on January 1, 2018. Ember Company paid $15,000 cash and signed a 25-year, 12% mortgage payable for the balance.

Requirements

1. Journalize the January 1, 2018,purchase.

2. Journalize the first monthly payment of $3,370 on January 31, 2018. (Round to the nearest dollar.)

Answer 1

Answer:

Explanation:

The journal entries are shown below:

1. Building A/c Dr $280,000

  Land A/c Dr $55,000

             To Cash A/c Dr$15,000

            To Mortgage Payable A/c $320,000

(Being the purchase is recorded)

2. Interest Expense  $3,200

   Mortgage payable A/c Dr $170

              To Cash A/c $3,370

(Being the first monthly payment is recorded)

The interest expense is computed below:

= Principal × rate of interest × number of months ÷ (total number of months in a year)  

= $320,000 × `12% × (1 months ÷ 12 months)

= $3,200

The 1 months is calculated from January 1, 2018, to January 31, 2018