We now come to the second class of mortgage interest, where interest on the entire mortgage is calculated at the beginning, added to the principal, and the sum divided into a number of equal parts. This method is similar to that frequently used by building and loan associations. It is important to ascertain the exact amount of each of the items, principal and interest, which compose the total amount represented by the notes. The various methods of doing this will be considered later. The general form of entry is as follows:

Mortgages Receivable ..........................

$......

To Real Estate........................

$......

" Unearned Interest ............................

..............

It will be seen that Mortgages Receivable account is debited with the total of principal and interest, for the reason that these are represented by definite notes, or sometimes by an obligation to make a specified number of payments, the actual execution of the notes being dispensed with on account of the labor involved, in which case the text of the mortgage is changed to correspond.

The discussion in Chapter XX (Earned Profits And Book Profits. Section 143. Book Profits) of real estate profits actually earned, emphasizes the importance of keeping each class of transaction distinct. With this in view, it is advisable to place by itself all such interest as that now being dealt with, and to keep it distinct and in a separate account from ordinary Mortgage Interest and from Interest and Discount. The name "Unearned Interest" is suggested for this account as being both appropriate and explanatory.