On 1 October 2015 Rugworld purchased a building for $800 000, paying $300 000 as a deposit and giving the seller a 12% mortgage for the balance. The monthly repayment was $6000. What is the entry to record the payment on 1 November 2015?

Question

Quizplus · Accepted Answer

The monthly repayment is $6000, which is the total of the interest expense and the reduction of the mortgage payable. Since the mortgage has a 12% interest rate, the interest expense for the first month would be 1/12 of 12% of the remaining balance ($5000). Therefore, the entry would be to debit interest expense for $5000, debit mortgage payable for $1000 (the reduction of the principal), and credit bank for $6000 (the actual payment made).

On 1 October 2015 Rugworld Purchased a Building for $800