[airforce16]

Tucki Co. receives $240,000 when it issues a $240,000, 8%, mortgage note payable to finance the construction of a building at December 31, 2014. The terms provide for semiannual installment payments of $17,660 on June 30 and December 31.

Prepare the journal entries to record the mortgage loan and the first two installment payments

[Ghaleb Mohd]

First the transaction represent " Liability "

Tucki Co. at the date of transactions should pass the following entry to reflect the transaction into books of Accounts.

31-12-2014

Dr. Cash A/c 240,000

Cr. Note Payable A/c 240,000

Second thing you should be aware of that the interest is payable two times every year. Therefore, the annual interest rate should be divided by 2 . (8% which is mentioned in the question, is given for the full year you should take the rate that represent half of the year ).

8% / 2 = 4% interest rate for semiannual .

240,000 x 4% = 9,600 interest expense that will be accrued on each semiannual.

Here is the payment entry that should be pass on 30-June-2015
Dr. Interest Payable A/c 9,600
Dr. Note Payable A/c 8,060
Cr. Cash A/c 17,660

Payment entry for 31-Dec-2015
Dr. Interest Expense A/c 9,600
Cr. Interest Payable A/c 9,600


Dr. Note Payable Non-Current Liability A/c 8,060
Cr. Note Payable Current Liability A/c 8,060