The form of mortgage under discussion necessitates a form of journal entry that will meet special conditions, inasmuch as it should show the principal and all the interest, both being included in the amount of the mortgage. This interest, however, is not yet earned, and will not be earned in full until the final payment is made on the mortgage. Under these circumstances it is plainly improper to carry this interest into Mortgage Receivable Interest account, which is periodically closed out into Profit and Loss account. It must be carried separately in an account which may be called Unearned Interest account.

For example, a purchaser buys from a vendor for $1,000 a piece of property which is to be paid for in 120 monthly payments, interest being at 6% per annum, calculated half-yearly. As was shown in Section 137, the amount of each of these notes should be $11.23, and the 120 notes would aggregate $1,347.60. Omitting all entries regarding profit on the transaction (which have already been described in Chapter XIII (Profits From Real Estate Sales. Section 77. Definition Of Profits)), the journal entry would have the following form:

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

$1,347.60

To Property Account.....................

$1,000.00

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

347.60