Fully Amortizing Installment Note Payable (Mortgage)
on October 31, 2011

question 166

Essay

Fully amortizing installment note payable (mortgage)
On October 31, 2011, Seldon Company incurs a 30-year $600,000 mortgage liability in conjunction with the purchase of a motel. This mortgage is payable in equal monthly installments of $6,485, which include interest computed at an annual rate of 12%. The first monthly payment is made on November 30, 2011. This mortgage is fully amortizing over 360 months.
Complete the amortization table for the first two payments by entering the correct dollar amounts in the blank spaces provided. In addition, answer the questions which follow.
(a) With respect to this mortgage, Seldon's 2011 income statement includes interest expense of $_______________, and Seldon's balance sheet at December 31, 2011, includes a total liability for this mortgage of _______________. (Do not separate into current and long-term portions.)
(b) The aggregate monthly cash payments Seldon will make over the 30-year life of the mortgage amount to $_______________.
(c) Over the 30-year life of the mortgage, the amount Seldon will pay for interest amounts to $_______________.
$$\begin{array} { | l | l | l | l | l | } \hline \text { Payment } & \text { Monthly } & \text { Interest } & \begin{array} { l } \text { Repayment } \\\text { of }\end{array} & \text { Unpaid } \\\hline \text { Date } & \text { Payment } & \text { Expense } & \text { Principal } & \text { Balance } \\\hline \text { Issuance } & - &- & - & \$ 600,000 \\\hline \text { Nov. 30 } & \$ 6,485 & \$ \underline{\quad\quad}& \$ \underline{\quad\quad}& \$ \underline{\quad\quad}\\\hline \text { Dec. 31 } & \$ 6,485 & \$\underline{\quad\quad} & \$\underline{\quad\quad} & \$\underline{\quad\quad} \\ \hline\end{array}$$

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Definitions:

Tax Rates

The percentage at which an individual or corporation is taxed, which can vary based on income level, type of income, and jurisdiction.

Money Supply

The total amount of monetary assets available in an economy at a specific time, including cash, coins, and balances held in checking and savings accounts.

Monetary Policy

Monetary policy involves the management of a country's money supply and interest rates by the central bank to influence economic activity, including inflation, consumption, and growth.

Monetary Contraction

A reduction in the total supply of money in an economy, which often aims to control inflation.