Raffiee Kid Assignment
Question1: Raffie’s Kids, a non-profit organization that provides aid to victims of domestic violence, low-income families, and special needs children has a 30-year, 5% mortgage on the existing building. The mortgage requires monthly payments of $3,000. Raffie’s bookkeeper is preparing financial statements for the board and in doing so, lists the mortgage balance of $287,000 under current liabilities because the board hopes to pay off the mortgage in full next year. $20,000 of the mortgage principal will be paid next year according to the mortgage agreement. * The board members call you, their trusted CPA. To advise them on how Raffie’s Kids should report the mortgage on the balance sheet. Provide the recommendation and discuss the reason for your recommendations.
Solution: Company has a mortgage loan payable and is required to make monthly payments of $3,000 per month. Each of the monthly payments includes a $2,850 principal payment plus approximately $1,50 of interest. This means that during the next 12 months, the company will be required to repay $34,200 ($2,850 x 12 months) of principal. The necessary principal payments due within one year of the balance sheet date must be reported as a current liability. The remaining principal of $252,800 ($287,000 minus $34,200) will be reported as a long-term liability, because it is not due within one year of the balance sheet date.
It can find the amount of principal due within the next year by reviewing the loan amortization schedule for each loan or by asking your lender. Payment Frequency | Payment Amount | Amortization | Term
Interest
Cost | Amortization
Interest
Cost | Amortization Interest Savings vs. Monthly Payment | Monthly | $1,531.70 | 30.0 yrs | $264,405.61 | $264,405.61 | $0.00 | Semi-monthly | $765.85 | 30.0 yrs | $263,106.20 | $263,106.20 | $1,304.06 | Bi-weekly | $706.94 | 29.8 yrs | $260,590.43 | $260,590.43 | $3,819.83 | Weekly | $353.47 | 29.8 yrs | $260,001.73 | $260,001.73
Solution: Company has a mortgage loan payable and is required to make monthly payments of $3,000 per month. Each of the monthly payments includes a $2,850 principal payment plus approximately $1,50 of interest. This means that during the next 12 months, the company will be required to repay $34,200 ($2,850 x 12 months) of principal. The necessary principal payments due within one year of the balance sheet date must be reported as a current liability. The remaining principal of $252,800 ($287,000 minus $34,200) will be reported as a long-term liability, because it is not due within one year of the balance sheet date.
It can find the amount of principal due within the next year by reviewing the loan amortization schedule for each loan or by asking your lender. Payment Frequency | Payment Amount | Amortization | Term
Interest
Cost | Amortization
Interest
Cost | Amortization Interest Savings vs. Monthly Payment | Monthly | $1,531.70 | 30.0 yrs | $264,405.61 | $264,405.61 | $0.00 | Semi-monthly | $765.85 | 30.0 yrs | $263,106.20 | $263,106.20 | $1,304.06 | Bi-weekly | $706.94 | 29.8 yrs | $260,590.43 | $260,590.43 | $3,819.83 | Weekly | $353.47 | 29.8 yrs | $260,001.73 | $260,001.73