Question

Hu Consulting needs to borrow $250,000 and is trying to determine what type of debt instrument to use. The company is considering two debt instruments: a long-term notes payable and a mortgage payable. The interest rate on both instruments is 6% and both instruments mature in ten years. The mortgage payable requires monthly payments of $2,775.51. The money will be borrowed on January 1, 2020.

D. Provide the entries to record the issuance of the mortgage payable, and the first monthly payments of the mortgage. (2 points)

Answer 1

1. Upon isssuance of mortagage payable

On Jan 1 2020

Cash Dr 250000$

To mortgage Payable Cr $250000

Since the Company pays In the form of EMI of $2,775.51 it means that the this amount consists of both the principal and Interest. So we need to find out the principal and interest breakup thru EMi calculator that  indicated principal repayment of $1525.52 and interest of 1250 $

2. So upon payment of first EMI

mortgage Payable Dr $1525.52

Interest expense Dr 1250$

To Cash / bank $2775.51