Autumn Company purchased a building on January 2 by signing a long-term $630000 mortgage with monthly payments of $5400. The mortgage carries an interest rate of 10 percent. The entry to record the first monthly payment will include a
A) debit to the Cash account for $5400.
B) credit to the Cash account for $5250.
C) debit to the Interest Expense account for $5250.
D) credit to the Mortgage Payable account for $5400.

Question

Quizplus · Accepted Answer

The first monthly interest expense is calculated as 10% annual interest on the $630,000 mortgage, divided by 12 months, which equals $5,250. Thus, the entry will include a debit to the Interest Expense account for $5,250.

Autumn Company Purchased a Building on January 2 by Signing