Kinyae Electronics issues a $700,000, 10-year, 7% mortgage note payable on December 31, 2013, to help finance a plant expansion. The terms of the note provide for semi-annual blended payments of $49,253. Payments are due on June 30 and December 31.
Instructions
(a) Prepare an instalment payment schedule for the first two years. Round all calculations to the nearest dollar.
(b) Record the issue of the mortgage note payable on December 31, 2013.
(c) Show how the mortgage liability should be reported on the balance sheet at December 31, 2013.
(d) Record the first two instalment payments on June 30, 2014, and December 31, 2014.
(e) If Kinyae made instalments of fixed principal payments on a semi-annual basis, what would the fixed principal payment be?
(f) Assuming Kinyae made fixed principal payments, record the first two instalments.
Taking It Further
Indicate the advantages and disadvantages of making fixed principal payments versus blended payments.