Question

On December 1, Year 1, Bradley Corporation incurs a 15-year $200,000 mortgage liability in conjunction with the acquisition of an office building. This mortgage is payable in monthly installments of $2,400, which include interest computed at the rate of 12% per year. The first monthly payment is made on December 31, Year 1.

How much of the first payment made on December 31, Year 1, represents interest expense?
a 2400
b 400
c 2304
d 2000

Answer 1

d 2000

Step-by-step explanation:

The computation of the interest payment made is shown below:

Interest expense is

= Mortgage liability × rate of interest × given months ÷ total months

= ($200,000 × 12%) × 1 ÷ 12

= $24,000 × 1 ÷ 12

= $2,000

Hence, the correct option is d.