Accounting for a Mortgage
On November 1, 2009, Nydegger Company arranges with an insurance company to borrow
$400,000 on a 30-year mortgage to purchase land and a building to be used in its operations.
The land and the building are pledged as collateral for the loan, which has an annual
interest rate of 12%, compounded monthly. The monthly payments of $4,114 are made at
the end of each month, beginning on November 30, 2009.
Required:
1. Prepare the journal entry to record the purchase of the land and building, assuming that
$75,000 of the purchase price is assignable to the land.
2. Prepare the journal entries on November 30 and December 31 for the monthly payments
on the mortgage.
3. Interpretive Question: Explain generally how the remaining liability at December 31,
2009, will be reported on the company’s balance sheet dated December 31, 2009.