Question

Kellerman Company purchased a building and land with a fair market value of $ 550 comma 000 ​(building, $ 425 comma 000 and​ land, $ 125 comma 000​) on January​ 1, 2018. Kellerman signed a 20​-year, 6​% mortgage payable. Kellerman will make monthly payments of $ 3 comma 940.37. Round to two decimal places. Explanations are not required for journal entries.

Answer 1

Answer and Explanation:

a.The Journal Entry is shown below:-

Building Dr, $425,000

Land Dr, $125,000

     To Mortgage payable $550,000

(Being issuance of mortgage payable is recorded)

b. The preparation of amortization table is shown below:-

Date       Interest       Cash payment    Principal        Carrying value

              expenses                               amortization

Borrow

Date                                                                                     $550,000

First PMT $2,750       $3,940.37      $1,190.37                  $548,809.63

           ($550,000 × 6% × 1 ÷ 12)

Second

PMT          $2,744.05  $3,940.37      $1,196.32                 $547,613.31

  (548,809.63 × 6% × 1 ÷ 12)

C. The Journal entry to record the first payment is shown below:-

Interest Expense Dr, $2,750  

Mortgage Payable Dr, $1,190.37  

     To Cash  $3,940.37

(Being the first payment is recorded)

D. The Journal entry to record the second payment is shown below:-

Interest Expense Dr, $2,744.05

Mortgage Payable Dr, $1,196.32

     To Cash  $3,940.37

(Being the second payment is recorded)