Teal Mountain Inc. issues a $590,000, 10%, 10-year mortgage note on December 31, 2017, to obtain...

Question:

Teal Mountain Inc. issues a $590,000, 10%, 10-year mortgage note on December 31, 2017, to obtain financing for a new building. The terms provide for annual installment payments of $96,020.

Prepare the entry to record the mortgage loan on December 31, 2017, and the first installment payment on December 31, 2018.

Mortgage Payable:

Mortgage payable is a liability in the balance sheet. This is where the borrower borrows money in order to pay for its purchased property. This generally bears interest and calls for an equal payments (semi-annual, annual, etc,.), where payments are applied first in the interest, then to the principal.

Answer and Explanation:

Date Account titles Debit Credit
Dec. 31 2017 Cash 590,000
Mortgage payable 590,000
Dec. 31 2018 Interest expense (590,000 x 10%) 59,000
Mortgage payable (590,000 - 59,000) 531,000
Cash 590,000

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