question 3 (5 points)\non january 1, bestway, inc. signed a $175,000, 8%, 30 - year mortgage that requires…

question 3 (5 points)\non january 1, bestway, inc. signed a $175,000, 8%, 30 - year mortgage that requires semiannual payments of $7,735 on june 30 and december 31 of each year. the journal entry for the first semiannual payment (with interest rounded to the nearest dollar) is\na) debit interest expense, $7,000; debit mortgage expense, $735; credit cash, $7,735.\nb) debit interest expense, $7,000; debit mortgage payable, $735; credit cash, $7,735.\nc) debit mortgage payable, $7,735; credit cash, $7,735.\nd) debit interest expense, $735; debit mortgage payable, $7,000; credit cash, $7,735.

question 3 (5 points)\non january 1, bestway, inc. signed a $175,000, 8%, 30 - year mortgage that requires semiannual payments of $7,735 on june 30 and december 31 of each year. the journal entry for the first semiannual payment (with interest rounded to the nearest dollar) is\na) debit interest expense, $7,000; debit mortgage expense, $735; credit cash, $7,735.\nb) debit interest expense, $7,000; debit mortgage payable, $735; credit cash, $7,735.\nc) debit mortgage payable, $7,735; credit cash, $7,735.\nd) debit interest expense, $735; debit mortgage payable, $7,000; credit cash, $7,735.

Answer

Explanation:

Step1: Calculate semi - annual interest

The annual interest rate is 8%, so the semi - annual interest rate $r=\frac{8%}{2}=4%$. The principal amount of the mortgage is $P = 175000$. The semi - annual interest expense $I=P\times r=175000\times0.04 = 7000$.

Step2: Determine principal reduction

The semi - annual payment is $7735$. The principal reduction (decrease in mortgage payable) is the semi - annual payment minus the interest expense. So, the principal reduction $=7735 - 7000=735$.

Step3: Analyze journal entry

The interest expense of $7000$ is debited, the reduction in the mortgage payable of $735$ is debited, and the cash payment of $7735$ is credited.

Answer:

B. debit Interest expense, $7,000; debit Mortgage payable, $735; credit Cash, $7,735.