Reid & Wright Learning Center needed some long-term financing, and arranged for a 10-year, $100,000, 7% mortgage loan on January 1, Year 1

Accounting Dec 16, 2020

Reid & Wright Learning Center needed some long-term financing, and arranged for a 10-year, $100,000, 7% mortgage loan on January 1, Year 1. Annual payments of $14,238 will be made on December 31 each year. Show the effect on the accounting equation of the second annual payment. Round to the nearest dollar.

Expert Solution

On the second annual payment, the cash would decrease by $14,238, retained earnings would decrease by $6,493 (due to interest expense), and liability (mortgage loan) would decrease by $7,745.

Working Note: Prepare the mortgage amortization schedule as follows: -

Mortgage Note Payable Interest Payment Schedule (Amortization Table)
Year	Installment	Interest Expense (b = d x 7.00%))	Decrease in carrying amount( c = b -a)	Carrying amount of Note (d = d + c)
0	$0.00			$100,000
1	$14,238	$7,000	($7,238)	$92,762
2	$14,238	$6,493	($7,745)	$85,017

Archived Solution

Unlocked Solution

You have full access to this solution. To save a copy with all formatting and attachments, use the button below.

Already a member? Sign In

Important Note: This solution is from our archive and has been purchased by others. Submitting it as-is may trigger plagiarism detection. Use it for reference only.

For ready-to-submit work, please order a fresh solution below.

Or get 100% fresh solution

Get Custom Quote