On September 1, 2011, Quick Lube signed a 30-year, $1,080,000 mortgage note payable to

Mifflinburg Bank and Trust in conjunction with the purchase of a building and land. The mortgage note calls for interest at an annual rate of 12 percent (1 percent per month). The note is fully amortizing over a period of 360 months.

The bank sent Quick Lube an amortization table showing the allocation of monthly payments between interest and principal over the life of the loan. A small part of this amortization table is illustrated below. (For convenience, amounts have been rounded to the nearest dollar.)

Instructions
a. Explain whether the amounts of interest expense and the reductions in the unpaid principal are likely to change in any predictable pattern from month to month.
b. Prepare journal entries to record the first two monthly payments on this mortgage.
c. Complete this amortization table for two more monthly installments—those due on December
1, 2011, and January 1, 2012. (Round amounts to the nearest dollar.)
d. Will any amounts relating to this 30-year mortgage be classified as current liabilities in Quick Lube’s December 31, 2011, balance sheet? Explain, but you need not compute any additional dollaramounts.

Transcribed Image Text:

AMORTIZATION TABLE (1296, 30-YEAR MORTGAGE NOTE PAYABLE FOR $1,080,000; PAYABLE IN 360 MONTHLY INSTALLMENTS OF $11,110) Monthly Payment Interest Expense Principal Unpaid Interest Period Payment Date Sept. 1, 2011 Oct. 1 Nov. 1 Reduction Balance $1,080,000 1,079,690 1,079,377 Issue date $11,110 11,110 $10,800 10,797 $310 313 2