Question

James has a monthly mortgage payment of $3,600 per month. Assuming that 60% of

the mortgage payment is principal and goes towards reducing the mortgage balance,

what would be the total amount that would be shown as an expense in the housing or

shelter category when preparing the year-end income statement?

Select one:

a. $17,280

b. $15,290

c. $25,920

d. $43,200

e. None of the above is correct

Answer 1

The amount that will be shown as an expense in the housing or shelter category when preparing the year-end income statement is $25,920. (Option C)

How is that so?

Below is a breakdown calculation:

Annual mortgage payment: $3,600/month * 12 months/year = $43,200

Principal portion of the payment: $43,200 * 60% = $25,920

Since the income statement only reflects the portion of the payment that reduces the loan balance, only the principal amount is considered an expense in the housing or shelter category.