Installment Term Loan On December 31, 2014. Thomas, Inc. borrowed $850.000 on an

Question

Installment Term Loan On December 31, 2014. Thomas, Inc. borrowed $850.000 on an eight percent, 15-year mortgage note payable. The note is to be repaid in equal semiannual installments of $49,156 (payable on June 30 and December 31). Prepare journal entries to reflect (a) the issuance of the mortgage note payable. (b) the payment of the first installment on June 30. 2015, and (c) the payment of the second installment on December 31,2015 Round amounts to the nearest dollar. General Journal Date Description Debit Credit Dec.31 Borrowed a mortgage note payable. Interest Expense To record semiannual payment

Explanation / Answer

Q.1 Journal entries Dec 31 2014 Cash Account Dr. 850,000     Mortgage Note payable 850000 June 30 2015 Mortgage Note payable Dr. 34000 Interest expense Dr. 15156     Cash Account 49156 Dec 31 2015 Mortgage Note payable Dr. 32640 Interest expense Dr. 16516     Cash Account 49156 Q2. Times interest earned ratio = Net income before interest / Interest expense ($ 14007+375) / 375 = 38.35 times Quick ratio = Liquid assets / Current liabilities ($ 1865+19100+9367) / 39255 = 0.773 Current Ratio = Current Assets / Current Liabilities $ 39088 /39255 = 0.996

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