Accounting for Mortgages

On January 1, 20Y1, Lily Company purchased a building for $1,000,000. The company made a 25% down payment and took out a mortgage payable over 30 years with monthly payments of $5,503.23. The first payment is due February 1, 20Y1. The mortgage interest rate is 8%.

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 8% interest rate is compounded monthly.) Round your answers to the nearest cent.

Feb. 1, 20Y1	Interest expense:	$
	Reduction to principal:	$
Mar. 1, 20Y1	Interest expense:	$
	Reduction to principal:	$

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2. Make the journal entry necessary to record the first mortgage payment on February 1, 20Y1. Round your answers to the nearest cent. If an amount box does not require an entry, leave it blank.

Feb. 1, 20Y1