Mortgage Extra Credit Problem 15 points Due Last day of clas

Mortgage Extra Credit Problem 15 points Due: Last day of class On December 31,2016, ABC Corporation purchased a building costing $300,000, signing a 10%, 5-year mortgage note payable on December 31, 2016, Five ANNUAL payments will be made each year to pay back the mortgage beginning on December 31,2017 REQUIRED: A. what is the annual installment payment required at a 10% rate? (3 pts) B. Give the general journal entry to record the purchase of the building (2 pts) C. Prepare an effective interest amortization table for the five years (5 pts) D. Give the general journal entries to record each of the five mortgage payments beginning on December 31, 2017. illey asons.inc. All Rights Reserved. A Division of Johnwileyasons.Ine Ma

Solution

Ans. A

Given, PV = $300,000, r = 10%, N= 5, PMT = ?

Using present value of annuity formula:

PVA = Pmt x (1-(1+r)^-n)/r

Putting values in formula,

300000 = PMT x (1-(1+10%)^-5)/0.1

300000 = PMT x 3.790787

PMT = 300000/3.790787 OR $79,139.24

So annual installment premium is $ 79,139.24

Ans. B

Date	General Journal	Debit	Credit
December 31, 2016	Building	$            300,000
	Mortgage note payable		$                       300,000
Date	installment	Interest at 10%	Principal repayment	carrying value
	A	B = D x 10%	C = A-B	D = D-C
December 31, 2016				$          300,000
December 31, 2017	79139.24	30000	49139.24	$          250,861
December 31, 2018	79139.24	25086.076	54053.164	$          196,808
December 31, 2019	79139.24	19680.7596	59458.4804	$          137,349
December 31, 2020	79139.24	13734.91156	65404.32844	$            71,945
December 31, 2021	79139.24	7194.478716	71944.76128	$                       0
December 31, 2017	Mortgage note payable	$        49,139.24
	Interest expense	$        30,000.00
	Cash		$                   79,139.24
December 31, 2018	Mortgage note payable	$        54,053.16
	Interest expense	$        25,086.08
	Cash		$                   79,139.24
December 31, 2019	Mortgage note payable	$        59,458.48
	Interest expense	$        19,680.76
	Cash		$                   79,139.24
December 31, 2020	Mortgage note payable	$        65,404.33
	Interest expense	$        13,734.91
	Cash		$                   79,139.24
December 31, 2021	Mortgage note payable	$        71,944.76
	Interest expense	$          7,194.48
	Cash		$                   79,139.24