I have just taken over a position and have noticed severe problems. I need help on setting up the liability correctly. It looks like it started in 2004, they just started paying payments, nothing was journaled as far as setting up the note. The original Amount of the not was $200k. The amount booked for the building is est. value $1m none of this makes any since. When I looked at the balance sheet every thing was credits, when it should have been natural debits. I got that fixed but now I'm looking at the G/L and noticed that the beginning balance of the mortgage is a debit.

Should I go back and book the ($200k) then make the necessary adjustment to building, without knowing the actual cost?

Tess

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I have just taken over a position and have noticed severe problems.

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Hmm, been there, done that.

I'm a bit confused over what happened here. They purchased a building in 2004 with a mortgage note payable? The note was $200,000. But you don't know how much the building actually costs, right? I'm not sure what you're meaning that it was booked for the est. value of $1 million. Is that when it was purchased, or did someone add that in later? It shouldn't be for its estimated value. It should be for actual cost. If it had cost a million and the note is only for $200,000, they would had to have paid $800,000 in cash, which doesn't make a lot of sense. I think you need to find out what the building cost at the time of purchase. I would hope that info would be around some place, like the paperwork from closing. You may need to ask around. Does the company have a CPA? That person may know something about what took place, although I would have hoped that person would have already straightened this out if they knew what took place.

Also, you said on the balance sheet "everything" was credits. What is "everything"? The building would be a debit, yes. If it was a credit, how did you fix it? You're saying "now" the mortgage is a debit. Does that mean something you did to try to correct it changed the mortgage?

As for the mortgage, you should be able to get some info from the bank who holds the note. You need to know what the payments are paying. i.e. what is going towards interest and what towards principal. You need the current balance of the note, and you need how much should have been charged to interest. When the payments were being made, where were they being charged?

It sounds like you have a nice mess on your hands... and I meant it when I said Been There, Done That. I've taken on far too many jobs where the previous person (or persons) had no clue what they were doing and I was left to dig into the past and clean up the mess.