Question

Preparing an amortization schedule and recording mortgages payable

entries

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

entries.

Requirements

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.

Short answer

The amount of the principal in the first payment is $1,190.37

Step-by-step solution

Definition of mortgage payable

The mortgage payable is a type of long-term debt backed by a security.

Amortization schedule of mortgage payable

Date	Beginning Balance	Principal Payment	Interest Expense	Ending Balance
01/01/2018				$550,000
01/31/2018	$550,000	$1,190.37	$2,750	$548,809.63
02/28/2018	$548,809.63	$1,196.33	$2,744.04	$547,613.30

$\begin{array}{rcl}Interest& =& principal\times rate\times timeperiod\\ & =& \$550,000\times 6\%\frac{1}{12}\\ & =& \$2,750\end{array}$