(a) To determine Mortgage: Mortgage is a way to finance an asset or premises by a fixed income secured loans. It becomes void when the loan is repaid in full. Mortgage is a term loan, usually for long tenure. Mortgage Payable: The mortgage payable refers the amount of long term secured debt of the company and comes under the liability side in the balance sheet . To prepare: A schedule of the payment of installments of mortgage payables for 4 years Explanation Statement to show the payment of installments for four years Year Annual Cash Payment ($) Interest Expense ($) Redemption of Principal ($) Principal Balance ($) 400,000 1 59,612 32,000 27,612 372,388 2 59,612 29,791.04 29,820.96 342,567.04 3 59,612 27,405.36 32,206.64 310,360.04 4 59,612 24,828.83 34,783.17 275,576.87 Working Note: Year 1: Compute the interest amount: Given, The total loan amount is $400,000. The interest rate is 8%. Formula to calculate the interest, Interest Expense = P × r × t 100 Where, P is the principal amount. r is the interest rate. t is the time period. Substitute $ 400,000 for P , 8 for r and 1 for t . Interest Expense = $ 400 , 000 × 8 × 1 100 = $ 3 , 200 , 000 100 = $ 32 , 000 Hence, the interest for the first year is $32,000. Compute the value of redemption of principal amount Total value of cash installment is $59,612. (Given) The interest expense for the year is $32,000. (Calculated) Formula to calculate the redemption of principal, Redemption of Principal for the Year = Annual Cash Installment − Interest Expense Substitute $59,612 for annual cash installment and $32,000 for interest expense. Redemption of Principal for the Year = $ 59 , 612 − $ 32 , 000 = $ 27 , 612 The value of principal in the annual payment is $27,612. Compute the balance at the end of the year Total balance at the year start is $400,000. (Given) The redemption of principal is $27,612. (Calculated) Formula to calculate the balance at the end of the year, Balance = Princiapl Amount Redeemed − Interest Amount Substitute $400,000 for principal amount redeemed and $32,000 for interest amount. Balance = $ 400 , 000 − $ 27 , 612 = $ 372 , 388 The balance at the end of the first year is $372,388. Year 2: Compute the interest amount: The balance loan amount is $372,388. (Calculated) The interest rate is 8%. (Given) Formula to calculate the interest, Interest Expense = P × r × t 100 Where, P is the principal amount. r is the interest rate. t is the time period. Substitute $ 372,388 for P , 8 for r and 1 for t . Interest Expense = $ 372 , 388 × 8 × 1 100 = $ 2 , 979 , 104 100 = 29 , 791.04 Hence, the interest for the first year is $29,791.04. Compute the value of redemption of principal amount Total value of cash installment is $59,612. (Given) The interest expense for the year is $29,791.04. (Calculated) Formula to calculate the redemption of principal, Redemption of Principal for the Year = Annual Cash Installment − Interest Expense Substitute $59,612 for annual cash installment and $29,791.04 for interest expense. Redemption of Principal for the Year = $ 59 , 612 − $ 29 , 791.04 = $ 29 , 820.96 The value of principal in the annual payment is $29,820.96. Compute the balance at the end of the year Total balance at the year start is $372,388. (Given) The redemption of principal is $29,820.96. (Calculated) Formula to calculate the balance at the end of the year, Balance = Princiapl Amount Redeemed − Interest Amount Substitute $372,388 for principal amount redeemed and $29,820 (b) (1) To determine To prepare: The journal entry for loan borrowed. (2) To determine To prepare: The journal entry for the payment of first installment. (c) To determine To prepare: balance sheet to show total mortgage liability.

12th Edition

ISBN: 9781118875056

Author: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso

Publisher: WILEY

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Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

Chapter 15, Problem 15.4AP

(a)

To determine

Mortgage: Mortgage is a way to finance an asset or premises by a fixed income secured loans. It becomes void when the loan is repaid in full. Mortgage is a term loan, usually for long tenure.

Mortgage Payable: The mortgage payable refers the amount of long term secured debt of the company and comes under the liability side in the balance sheet.

To prepare: A schedule of the payment of installments of mortgage payables for 4 years

(b)

(1)

To determine

To prepare: The journal entry for loan borrowed.

(2)

To determine

To prepare: The journal entry for the payment of first installment.

(c)

To determine

To prepare: balance sheet to show total mortgage liability.

Expert Solution & Answer

Chapter 15 Solutions

Accounting Principles - Standalone book

Ch. 15 - Prob. 1Q Ch. 15 - 2. Contrast the following types of bonds: (a)...Ch. 15 - Prob. 3Q Ch. 15 - Prob. 4Q Ch. 15 - Prob. 5Q Ch. 15 - Prob. 6Q Ch. 15 - Prob. 7Q Ch. 15 - Prob. 8Q Ch. 15 - Prob. 9Q Ch. 15 - Prob. 10Q

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