Preparing an amortization schedule and recording mortgages payable
Kellerman Company purchased a building and land with a fair market value of
$550,000 (building, $425,000, and land, $125,000) on January 1, 2018. Kellerman
signed a 20-year, 6% mortgage payable. Kellerman will make monthly payments of
$3,940.37. Round to two decimal places. Explanations are not required for journal
1. Journalize the mortgage payable issuance on January 1, 2018.
2. Prepare an amortization schedule for the first two payments.
3. Journalize the first payment on January 31, 2018.
4. Journalize the second payment on February 28, 2018.
The mortgage payable account and interest expense account is debited with $1,190.37 and $2,750.
Journal entry is the entry which are made by the company to record the financial event or transaction took place in company.
January 31, 2018
(Being entry to record the first payment)
Determining bond amounts
Savvy Drive-Ins borrowed money by issuing $3,500,000 of 9% bonds payable at 99.5. Interest is paid semiannually.
1. How much cash did Savvy receive when it issued the bonds payable?
2. How much must Savvy pay back at maturity?
3. How much cash interest will Savvy pay each six months?
Determining the present value of bonds payable and journalizing
using the effective-interest amortization method
Brad Nelson, Inc. issued $600,000 of 7%, six-year bonds payable on January 1, 2018.
The market interest rate at the date of issuance was 6%, and the bonds pay interest
1. How much cash did the company receive upon issuance of the bonds payable? (Round to the nearest dollar.)
2. Prepare an amortization table for the bond using the effective-interest method, through the first two interest payments (Round to the nearest dollar.)
3. Journalize the issuance of the bonds on January 1, 2018, and the first and second payments of the semiannual interest amount and amortization of the bonds on June 30, 2018, and December 31, 2018. Explanations are not required.
Raffie’s Kids, a nonprofit organization that provides aid to victims of domestic violence,low-income families, and special-needs children, has a 30-year, 5% mortgageon the existing building. The mortgage requires monthly payments of $3,000. Raffie’sbookkeeper is preparing financial statements for the board and, in doing so, lists themortgage balance of $287,000 under current liabilities because the board hopes to beable to pay the mortgage off in full next year. Of the mortgage principal, $20,000 willbe paid next year if Raffie’s pays according to the mortgage agreement. The boardmembers call you, their trusted CPA, to advise them on how Raffie’s Kids shouldreport the mortgage on its balance sheet. What is the ethical issue? Provide and discussthe reason for your recommendation.
Reporting liabilities on the balance sheet and computing debt to equity ratio. The accounting records of Pack Leader Wireless include the following as of December 31, 2018:
Accounts Payable $ 77,000 Salaries Payable $ 7,500
Mortgages Payable (long-term) 73,000 Bonds Payable (current portion) 25,000
Interest Payable 18,000 Premium on Bonds Payable 10,000
Bonds Payable (long-term) 63,000 Unearned Revenue (short-term) 2,700
Total Stockholders’ Equity 140,000
1. Report these liabilities on the Pack Leader Wireless balance sheet, including headings and totals for current liabilities and long-term liabilities.
2. Compute Pack Leader Wireless’s debt to equity ratio at December 31, 2018.
Journalizing liability transactions and reporting them on the balance
The following transactions of Johnson Pharmacies occurred during 2018 and 2019:
Mar. 1 Borrowed $450,000 from Coconut Creek Bank. The 15-year, 5% note requires
payments due annually, on March 1. Each payment consists of $30,000 principal
plus one year’s interest.
Dec. 1 Mortgaged the warehouse for $250,000 cash with Saputo Bank. The mortgage
requires monthly payments of $8,000. The interest rate on the note is 12% and
accrues monthly. The first payment is due on January 1, 2019.
31 Recorded interest accrued on the Saputo Bank note.
31 Recorded interest accrued on the Coconut Creek Bank note.
Jan. 1 Paid Saputo Bank monthly mortgage payment.
Feb. 1 Paid Saputo Bank monthly mortgage payment.
Mar. 1 Paid Saputo Bank monthly mortgage payment.
1 Paid first installment on note due to Coconut Creek Bank.
1. Journalize the transactions in the Johnson Pharmacies general journal. Round to
the nearest dollar. Explanations are not required.
2. Prepare the liabilities section of the balance sheet for Johnson Pharmacies on
March 1, 2019 after all the journal entries are recorded.
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