Bonnie's Family is a non-profit organization which assists families with low-income, special needs children, or are victims of domestic violence. They have a 30 year mortgage with a 5% interest rate which requires a payment of $3,000 per month. In preparing the financial statements for the board, you list the mortgage balance of $287,000 as a current liability based on the board hoping to pay it off within the next year. If Bonnie's pays according to the mortgage agreement, only $20,000 will be paid in the next year. The board asks an independent CPA to advise how to report the mortgage on the balance sheet. 1. Explain how to account for the mortgage payment based on U.S. GAAP, assuming the board feels they will pay the entire balance in the next year. 2. Provide supporting information to the accounting for the mortgage on the balance sheet for your response to requirement 1.
Bonnie's Family is a non-profit organization which assists families with low-income, special needs children, or are victims of domestic violence. They have a 30 year mortgage with a 5% interest rate which requires a payment of $3,000 per month. In preparing the financial statements for the board, you list the mortgage balance of $287,000 as a current liability based on the board hoping to pay it off within the next year. If Bonnie's pays according to the mortgage agreement, only $20,000 will be paid in the next year. The board asks an independent CPA to advise how to report the mortgage on the balance sheet. 1. Explain how to account for the mortgage payment based on U.S. GAAP, assuming the board feels they will pay the entire balance in the next year. 2. Provide supporting information to the accounting for the mortgage on the balance sheet for your response to requirement 1.
Chapter3: Income Sources
Section: Chapter Questions
Problem 41P
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Step 1
Mortgage is a liability which is to be repaid by the firm to the lender over the period of time. A mortgage is reported on the balance sheet on the liability side.
The liability on the balance sheet is classified in two broad categories; 1) Current liabilities and 2) Non-current liabilities. Current liabilities are basically the short liabilities.
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