On September 1, 2021, Speedy Lube signed a 30-year, $1,080,000 mortgage note payable to Jonstown Bank and Trust in conjunction with the purchase of a building and land. The mortgage note calls for interest at an annual rate of 12 percent (1 percent per month). The note is fully amortizing over a period of 360 months. The bank sent Speedy Lube an amortization table showing the allocation of monthly payments between interest and principal over the life of the loan. A small part of this amortization table is illustrated as follows. (For convenience, amounts have been rounded to the nearest dollar.) AMORTIZATION TABLE (12%, 30-YEAR MORTGAGE NOTE PAYABLE FOR $1,080,000; PAYABLE IN 360 MONTHLY INSTALLME Interest Period Payment Date Monthly Payment Interest Expense Principal Reduction Ur Issue date Sept. 1, 2021 1 Oct. 1 $11,110 $10,800 $310 Nov. 1 11,110 10,797 313 Instructions a. Explain whether the amounts of interest expense and the reductions in the unpaid principal are likely to change in any predictable pattern from month to month. b. Prepare journal entries to record the first two monthly payments on this mortgage. c. Complete this amortization table for two more monthly installments–those due on December 1, 2021, and January 1, 2022. (Round amounts to the nearest dollar.)
On September 1, 2021, Speedy Lube signed a 30-year, $1,080,000 mortgage note payable to Jonstown Bank and Trust in conjunction with the purchase of a building and land. The mortgage note calls for interest at an annual rate of 12 percent (1 percent per month). The note is fully amortizing over a period of 360 months. The bank sent Speedy Lube an amortization table showing the allocation of monthly payments between interest and principal over the life of the loan. A small part of this amortization table is illustrated as follows. (For convenience, amounts have been rounded to the nearest dollar.) AMORTIZATION TABLE (12%, 30-YEAR MORTGAGE NOTE PAYABLE FOR $1,080,000; PAYABLE IN 360 MONTHLY INSTALLME Interest Period Payment Date Monthly Payment Interest Expense Principal Reduction Ur Issue date Sept. 1, 2021 1 Oct. 1 $11,110 $10,800 $310 Nov. 1 11,110 10,797 313 Instructions a. Explain whether the amounts of interest expense and the reductions in the unpaid principal are likely to change in any predictable pattern from month to month. b. Prepare journal entries to record the first two monthly payments on this mortgage. c. Complete this amortization table for two more monthly installments–those due on December 1, 2021, and January 1, 2022. (Round amounts to the nearest dollar.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Complete part a, b and c.

Transcribed Image Text:PROBLEM 10.4A Preparation and Use of an Amortization Table L LO10-4
On September 1, 2021, Speedy Lube signed a 30-year, $1,080,000 mortgage note payable to Jonstown Bank and Trust in conjunction with
the purchase of a building and land. The mortgage note calls for interest at an annual rate of 12 percent (1 percent per month). The note is
fully amortizing over a period of 360 months.
The bank sent Speedy Lube an amortization table showing the allocation of monthly payments between interest and principal over the life of
the loan. A small part of this amortization table is illustrated as follows. (For convenience, amounts have been rounded to the nearest
dollar.)
AMORTIZATION TABLE (12%, 30-YEAR MORTGAGE NOTE PAYABLE FOR $1,080,000; PAYABLE IN 360 MONTHLY INSTALLME
Interest Period
Payment Date
Monthly Payment
Interest Expense
Principal Reduction
Un
Sept. 1, 2021
Oct. 1
Nov. 1
Issue date
1
$11,110
$10,800
$310
11,110
10,797
313
Instructions
a. Explain whether the amounts of interest expense and the reductions in the unpaid principal are likely to change in any predictable pattern
from month to month.
b. Prepare journal entries to record the first two monthly payments on this mortgage.
c. Complete this amortization table for two more monthly installments-those due on December 1, 2021, and January 1, 2022. (Round
amounts to the nearest dollar.)
d. Will any amounts relating to this 30-year mortgage be classified as current liabilities in Speedy Lube's December 31, 2021, balance sheet?
Explain, but you need not compute any additional dollar amounts.

Transcribed Image Text:PROBLEM 10.4A Preparation and Use of an Amortization Table e LO10-4
On September 1, 2021, Speedy Lube signed a 30-year, $1,080,000 mortgage note payable to Jonstown Bank and Trust in conjunction with
the purchase of a building and land. The mortgage note calls for interest at an annual rate of 12 percent (1 percent per month). The note is
fully amortizing over a period of 360 months.
The bank sent Speedy Lube an amortization table showing the allocation of monthly payments between interest and principal over the life of
the loan. A small part of this amortization table is illustrated as follows. (For convenience, amounts have been rounded to the nearest
dollar.)
N TABLE (12%, 30-YEAR MORTGAGE NOTE PAYABLE FOR $1,080,000; PAYABLE IN 360 MONTHLY INSTALLMENTS OF $11,110)
d
Payment Date
Monthly Payment
Interest Expense
Principal Reduction
Unpaid Balance
Sept. 1, 2021
Oct. 1
$1,080,000
$11,110
$10,800
$310
1,079,690
Nov. 1
11,110
10,797
313
1,079,377
Instructions
a. Explain whether the amounts of interest expense and the reductions in the unpaid principal are likely to change in any predictable pattern
from month to month.
b. Prepare journal entries to record the first two monthly payments on this mortgage.
c. Complete this amortization table for two more monthly installments-those due on December 1, 2021, and January 1, 2022. (Round
amounts to the nearest dollar.)
d. Will any amounts relating to this 30-year mortgage be classified as current liabilities in Speedy Lube's December 31, 2021, balance sheet?
Explain, but you need not compute any additional dollar amounts.
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