(Accounting for mortgages, LO 4) On May 1, 2005 Duricle Inc. (Duricle) purchased land for $1,000,000. Duricle plans to build an office building or a condominium on the land some time in the future. Duricle paid $300,000 in cash and arranged a 5-year, 10% mortgage with a bank for the balance. The mortgage requires equal semi-annual blended payments on October 31 and April 30 of each year over the term of the mortgage. Duricle’s year end is December 31.

Required:

a. Prepare the journal entry to record the mortgage and the purchase of the land.

b. What will be Duricle’s annual mortgage payments?

c. Prepare a schedule similar to the one in Table 10-7 (page 594) showing the interest and principal components of each semi-annual payment.

d. Prepare the journal entry to accrue the interest expense on December 31, 2007 and on December 31, 2008.

e. Prepare the journal entries to record the mortgage payment made on April 30, 2007 and on October 31, 2009.

f. If Duricle has a tax rate of 40%, what would be its after-tax cost of the mortgage?