Question

Delmar Company purchased a building on January 2 by signing a long-term $480,000 mortgage with monthly payments of $4,400. The mortgage carries an interest rate of 10 percent. The entry to record the first monthly payment will include a Group of answer choices

Answer 1

Answer and Explanation:

The journal entries are shown below:

For the month of January

Cash $480,000

To Mortgage Payable $480,000

(Being the mortgage payable is recorded)

For recording this we debited the cash as it increased the assets and credited the mortgage payable as it also increased the liabilities

For the month of February

Mortgage Payable $400

Interest Expense $4,000 {($480,000 × 10%) ÷ 12 months}

To Cash $4,400

(Being the cash paid is recorded)

For recording this we debited the mortgage payable and interest expense as it decreased the liabilities and increased the expenses and credited the cash as it decreased the assets

Now the balance left is

Beginning balance of Mortgage Payable $480,000

Less: February Deduction (400)

Ending Balance of Mortgage Payable $479,600