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On January 1, 2021, Gundy Enterprises purchases an office building for $360,000, paying $60,000 down and borrowing the remaining $300,000, signing a 7%, 10-year mortgage. Installment payments of $3,483.25 are due at the end of each month, with the first payment due on January 31, 2021.

Required:
a. Record the purchase of the building on January 1, 2015.
b. Record the first monthly mortgage payment on January 31, 2015. How much of the first payment goes to interest expense and how much goes to reducing the carrying value of the loan?
c. Total payments over the 10 years are $417,990 ($3,483.25 x 120 monthly payments). How much of this is interest expense and how much is actual payment of the loan?

Respuesta :

abiolataiwo2015

Answer:

A.Dr Building $360,000

Cr Cash $60,000

Cr Notes Payable $300,000

B.Dr Interest Expense $1,750

Dr Notes Payable $1,733.25

Cr Cash $3,483.25

C.$117,990

Explanation:

Grundy Enterprises

1/1/18

Cash Paid/monthly payment

Interest Expense/carrying value

Decrease in Carrying Value

Carrying Value/prior carrying value- $300,000

1/31/18

Cash Paid/Monthly Payment - $3,483.25

Interest Expense/Carrying Value - $1,750.00

Decrease in Carrying Value - $1,733.25

Carrying Value/Prior Carrying Value - (300,000- 1,733.25) $298,266.75

2/28/18

Cash Paid/Monthly Payment - $3,483.25

Interest Expense/Carrying Value - $1,739.89

Decrease in Carrying Value - $1,743.36

Carrying Value/Prior Carrying Value - $296,523.39

A. Preparation of the entry to record the purchase of the building on January 1, 2015.

Dr Building $360,000

Cr Cash $60,000

Cr Notes Payable $300,000

B. Preparation to Record the first monthly mortgage payment on January 31, 2015 and How much of the first payment goes to interest expense and the carrying value of the loan

Dr Interest Expense $1,750

Dr Notes Payable $1,733.25

Cr Cash $3,483.25

C. Calculation of How much of this is interest expense and how much is actual payment of the loan.

Total Paid: $417,990

Less: Principal Balance: ($300,000)

Amount of Interest Paid: $117,990

ogorwyne

a.) The purchase of the building on January 1, 2015 is $300000

b.) The  amount that goes to interest expense is $1750 and $1733.25 goes towards reducing the carrying value.

c.) The total actual payment on this loan is $300000 and the interest expense = $1733.25

a. Asset = Liability + Equity

asset = 360000 building

Liability = 300000

Equity = - 60000

360000 = liability + 60000

Liability = 360000 - 60000

= $300000

The purchase of the building on January 1 2015 is $300000

b. Interest expense calculation

value = 300000

Interest rate = 7%

time =  1 month out of 12 months

Interest = 0.07*300000*1/12

= $1750

The fall in the carrying value

Payment in the month = 3483.25

Interest = $1750

Decrease = 3483.25-1750

= $1733.25

The carrying at Jan 31st

= 300000-1733.25

= $298266.75

Interest = 298266.75*0.07*1/12

= $1739.89

c. Total loan = $417990

Actual payment = 300000

difference = 417990-300000

= $117990

The total actual payment on this loan is $300000 and the interest expense = $1733.25

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