Purchase Solution

# Mortgage Amortization and Liability

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On September 30, 2009, Dixon Inc. incurs a 30-year \$700,000 mortgage liability in conjunction with its purchase of a candy factory. This mortgage is payable in equal monthly installments of \$3,758 which include interest computed at an annual rate of 5%. The first monthly payment is made on October 31, 2009. This mortgage is fully amortizing over 30 years. Complete the amortization table for the first four payments by entering the correct dollar amounts in the blank spaces provided. In addition, answer the questions which follow.

Date Payment Interest Principal Balance
Issuance \$700,000.00
Oct. 31, 2009 \$3,758.00
Nov. 30, 2009 \$3,758.00
Dec. 31, 2009 \$3,758.00
Jan. 31, 2010 \$3,758.00

(a) With respect to this mortgage, Dixon's 2009 income statement includes interest expense of ?

(b) At December 31, 2009, Dixon's balance sheet includes a total liability for this mortgage of ? (do not separate into current and long-term portions.)

(c) The total of the monthly cash payments Dixon will make over the 30-year life of the mortgage is ?

(d) Over the 30-year life of the mortgage the amount Dixon will pay for interest amounts to ?

Please create the journal entry for the January 31, 2010 mortgage payment, assuming the debt was originally recorded as "Mortgage Debt."

Date Account Debit Credit

##### Solution Summary

Given facts concerning a mortgage, this solution illustrates how to complete a mortgage amortization schedule. It also shows how to compute the total interest expense for the period and the debt at the end of the period, as well as the total amount paid and interest paid over the life of the loan.

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