(Accounting for mortgages, LO 4) On November 1, 2006 Astwood Inc. (Astwood)

purchased a small apartment building for $3,000,000. Astwood paid $500,000 in cash and arranged a 10-year, 8% mortgage with a bank for the balance. The mortgage requires equal annual blended payments on October 31 of each year over the term of the mortgage. Astwood’s year end is October 31.

Required:

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

b. What will be Astwood’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 annual payment.

d. Prepare the journal entries to record the mortgage payment made on October 31, 2009 and on October 31, 2012.

e. If Astwood has a tax rate of 24%, what would be its after-tax cost of the mortgage?