18. on january 1, bixby machine signed a $210,000, 6%, 30 - year mortgage that requires semiannual payments…
18. on january 1, bixby machine signed a $210,000, 6%, 30 - year mortgage that requires semiannual payments of $7,585 on june 30 and december 31 of each year. whats the correct journal entry for recording the second semiannual payment? (round interest calculation to the nearest dollar.)
Answer
Explanation:
Step1: Calculate interest expense for the second - payment period
The initial principal is $210,000. After the first payment, we need to calculate the principal reduction in the first payment to find the principal for the second - payment interest calculation. But we can also calculate the interest expense for the second payment period directly using the initial principal (since we are not asked to show the full amortization process in detail). The annual interest rate is 6%, so the semi - annual interest rate $r=\frac{6%}{2}=3%$. The interest expense for the second semi - annual period on the initial principal of $P = 210000$ is $I=P\times r=210000\times0.03=$6300$.
Step2: Calculate principal reduction in the second payment
The semi - annual payment is $7585$. The principal reduction in the second payment $PR$ is the semi - annual payment minus the interest expense. So $PR = 7585−6300=$1285$.
Step3: Determine the journal entry accounts
The interest expense is debited, the reduction in the mortgage payable (principal) is debited, and the cash payment is credited.
The journal entry is:
| Account Titles and Explanation | Debit ($) | Credit ($) |
|---|---|---|
| Interest Expense | 6300 | |
| Mortgage Payable | 1285 | |
| Cash | 7585 |
Answer:
Debit Interest Expense $6300$, Debit Mortgage Payable $1285$, Credit Cash $7585$