On December 1, 2020, Crawley Corporation incurs a 15-year $600,000 mortgage liability in conjunction with the acquisition of an office building.This mortgage is payable in monthly installments of $7,200, which include interest computed at the rate of 12% per year.The first monthly payment is made on December 31, 2020.The portion of the second monthly payment made on January 31, 2021, which represents repayment of principal is

Question

Quizplus · Accepted Answer

To determine the portion of the second monthly payment that represents repayment of principal, we need to first calculate the amount of interest paid in the first monthly payment.

Interest paid in the first monthly payment:
= $600,000 x 0.12/12 
= $6,000

Therefore, the amount of principal repaid in the first monthly payment is: 
= $7,200 - $6,000 
= $1,200

Since the first monthly payment was made on December 31, 2020, the portion of the second monthly payment made on January 31, 2021, which represents repayment of principal would be the same as the principal repaid in the first monthly payment, which is $1,200.

Therefore, the answer is B) $1,212.

On December 1, 2020, Crawley Corporation Incurs a 15-Year $600,000