Ste. Anne Corp. issued a 10-year, 5%, $150,000 mortgage payable to finance the construction of a building at December 31, 2014. The terms provide for semi-annual instalment payments on June 30 and December 31.
Instructions
(a) Record the issue of the mortgage payable on December 31, 2014.
(b) Record the first two instalment payments on June 30, 2015, and December 31, 2015, assuming the payment is (1) a fixed principal payment of $7,500, and (2) a blended principal and interest payment of $9,622. Round all amounts to the nearest dollar.
(c) Explain why interest expense is the same regardless of whether the payment is blended or based on fixed principal payments for the six months ending June 30 but different for the six months ended December 31.