2. On January 1, 2017, Gaskin Cabinetry Company purchases $300,000 of equipment by paying $50,000 in cash and signing a 10-year mortgage note at 13% for the balance. Gaskin will make yearly payments of $46,072. The
amortization schedule for the first five payments is provided.
01/01/2017
01/01/2018
01/01/2019
01/01/2020
01/01/2021
01/01/2022
Beginning Principal Interest Total Ending
Balance Payment Expense Payment Balance
$250,000
$250,000 $13,572 $32,500 $46,072 236,428
236,428 15,336 30,736 46,072 221,092
221,092 17,330 28,742 46,072 203,762
203,762 19,583 26,489
46,072 184,179
184,179 22,129 23,943 46,072 162,050
Prepare the journal entry for the purchase of the equipment and for the January 1, 2018 mortgage payment.
Answer.

(a) Debit Equipment for $300,000; Credit Cash for $50,000; and Credit Mortgage Note for $250,000

(b) Debit Mortgage Note for $13,572; Deebit Interest expense - Mortgage for $32,500; Credit Cash for $46,072.

Explanation:

(a) Prepare the journal entry for the purchase of the equipment.

The journal entries will look as follows:

Date              Accounts Name and Explanation     Debit ($)      Credit ($)  

1 Jan 2017     Equipment                                           300,000

                       Cash                                                                         50,000

                       Mortgage Note                                                      250,000

                     (To record purchase of the equipment.)                                  

(b) Prepare the journal entry for the January 1, 2018 mortgage payment.

The journal entries will look as follows:

Date                Accounts Name and Explanation       Debit ($)     Credit ($)

1 Jan 2018       Mortgage Note                                      13,572

                         Interest expense - Mortgage              32,500

                         Cash                                                                           46,072

                       (To record mortgage and interest payments.)                          

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