Question

This is a Discussion Issue

A nonprofit organization has a 30-year, 5% mortgage on a existing building. The mortgage requires a $3,000 monthly payment. Their current bookkeeper is preparing financial statements for the board and, in doing so lists the mortgage balance at $287,000 under the current liabilities because the board hopes to be able to pay off the mortgage in full next year. Of the mortgage principle, $20,000 will be paid next year if the organization pays according to the mortgage agreement. The board members call you, their trusted CPA, to advise them on how should they report the mortgage on the balance sheet.

Question:

1. What might be an ethical issue here?

2. What would you recommend, leave as is or change the financial statement.

In addition, there is a 200 word minimum for your initial post.

Answer 1

1. The monthly payment = $3,000 and this may embody principal moreover as interest payments. Now, out of the entire $287,000 mortgage balance, only $20,000 of principal quantity are going to be paid off at intervals subsequent twelve months. The balance principal quantity are going to be = 287,000 - 20,000 = $267,000. This quantity can not be shown below current liabilities as they'll possibly be paid when twelve months. The ethical issue here is that as per accounting norms the desired principal payments due at intervals one year of the record date should be rumored as a current liability. during this case $20,000 is that the principal payments that area unit due at intervals one year of the record date and so solely $20,000 ought to be rumored as current liability. The balance quantity of $267,000 ought to be rumored as an extended term liability. The IMA moral standards embody honesty, fairness, sound judgment and responsibility. By showing the future liability as a brief term or a current liability, fairness is being compromised. this may gift a wrong money position of the noncommercial organization. 2. The neutral theory states that management of a company ought to manage its operations in such how therefore on keep the interests of the stakeholders safe and guarded. Donors area unit necessary stakeholders in an exceedingly noncommercial organization. The interest of the donor must be unbroken aligned with the objectives of the noncommercial concern. The impact of showing the balance $267,000 as current liabilities is that the donors are going to be misled and can have misinformation regarding the organization's future debt. so the donors can build a wrong economic condition analysis of the noncommercial organization. they'll be misled into thinking that the extent of future debt is low (as $267,000 has been excluded) and can legally believe that Raffie's children incorporates a robust economic condition position as indicated by its future debt to capitalization magnitude relation. 3. My recommendation is that the balance quantity of $267,000 shouldn't be shown as a current liability simply because the management hopes to pay it off within the next year. it'll got to be classified as an extended term debt because the principal payment is due when one year.

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