On January 1, Wonderland, Inc. signed a $260,000, 7%, 30-year mortgage that requires semiannual payments of $10,423 on June 30 and December 31 of each year. The journal entry to record the first semiannual payment would be (round interest calculation to the nearest dollar) to:
A) debit Mortgage Payable, $10,423; credit Cash, $10,423.
B) debit Interest Expense, $1,323; debit Mortgage Payable, $9,100; credit Cash, $10,423.
C) debit Interest Expense, $9,100; debit Mortgage expense, $1,323; credit Cash, $10,423.
D) debit Interest Expense, $9,100; debit Mortgage Payable, $1,323; credit Cash, $10,423.
D) debit Interest Expense, $9,100; debit Mortgage Payable, $1,323; credit Cash, $10,423.
Explanation: Interest expense = principle × rate × time, difference between payment and interest expense gives mortgage payable amount. Ex: $260,000 × 7% × 1/2 = $9,100 interest expense; $10,423 - $9,100 = $1,323 mortgage payable.
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