EXERCISE 10-13 ACCOUNTING FOR MORTGAGES On Januan' 1, 2002, Lily Company purchased a building for $800,000. The company made a 20% downpayment and took out a mortgage payable over 30 years with monthly payments of $5,616.46. The first payment is due February 1, 2002. The mortgage interest rate is 10%.

1. Determine how much of the first two mortgage payments would be applied to interest expense and how much would be applied to reducing the principal.

(Note: The 10% interest rate is compounded monthly.)

2. Make the journal entry necessary to record the first mortgage payment on February 1, 2002.