How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask Law Educator, Esq. Your Own Question

Law Educator, Esq.
Law Educator, Esq., Attorney
Category: Legal
Satisfied Customers: 91883
Experience:  JA Mentor -Attorney Labor/employment, corporate, sports law, admiralty/maritime and civil rights law
10285032
Type Your Legal Question Here...
Law Educator, Esq. is online now
A new question is answered every 9 seconds

A question for PaulMJD: "Would you pleases clarify why annual

Customer Question

A question for PaulMJD:

"Would you pleases clarify why annual mortgage principal payments are not identified as expenses in CPA's audits of housing cooperative corporations?"
Submitted: 1 year ago.
Category: Legal
Expert:  Law Educator, Esq. replied 1 year ago.
A mortgage principal payment (not interest or taxes) is merely a conversion of cash asset into real property asset, which is why it is not an expense of the cooperative. The value of the real property asset is still there and the principal payment converts to equity into the real property, so that principal payment does not really leave the cooperative, it is just converted from cash to equity. Debt represents amounts that a corporation owes, and that it must reimburse, but when that debt is converted to equity in the property there is no real cash income or expense it is just changed from the amount of debt owed to the lender to an increase in equity in the property owned by the association.


I truly aim to please you as a customer, but please keep in mind that I do not know what you already know or don't know, or with what you need help, unless you tell me. Please consider that I am answering the question or question that is posed in your posting based upon my reading of your post and sometimes misunderstandings can occur. If I did not answer the question you thought you were asking, please respond with the specific question you wanted answered.

If you did not get all of the information you may have wanted PLEASE USE THE REPLY TO EXPERT LINK IF YOU HAVE FOLLOW UP QUESTIONS AND NOT THE FEEDBACK BUTTON FOR BAD SERVICE. PLEASE CLICK ON “OK,” “GOOD” or “EXCELLENT” SERVICE. Kindly remember to ONLY rate my answer when you are fully satisfied. If you feel the need to rate anything less than OK, please stop and reply to me via the or REPLY TO EXPERT button with whatever issue or clarification you may need.

Also remember, sometimes the law does not support what we want it to support, but that is not the fault of the person answering the question, so please be courteous.

PLEASE NOTE WELL WE ARE DEALING WITH LAWS OF 50 STATES PLUS FEDERAL LAWS, AS WELL AS DEALING WITH OTHER CUSTOMERS, SO PLEASE BE PATIENT AND BE ASSURED YOU ARE NOT BEING IGNORED.

There can also be a delay of an hour or more in between my answers because I may be helping other customers or taking a break.

You can always request me through my profile at http://www.justanswer.com/law/expert-paulmjd/ or beginning your question with “For PaulMJD…”

Customer: replied 1 year ago.

PaulMJD: It wasn't you I had a conversation with on this subject it was MyVirtualCPA who replied: "Only interest is an expense because mortgage principal reduces debt, and therefore is a "balance sheet" "transaction. So I gather this agrees with what you say.


The problem I am having is that if mortgage principal payments are not included as a expense in annual audits, the net income/ (loss) for any year are always larger than they really are because the annual mortgage amount is not included as an expense, yet the total mortgage payment--interest and principal--are included as income. By not including mortgage principal as an expense of say $500,000, an annual net loss of say $200,000 gets changed to a net income of $300,000, and the whole financial picture is obscured.

Expert:  Law Educator, Esq. replied 1 year ago.
Correct, that is what I said, what your CPA service said.

The equity should increase according to the amount of principal paid, so this is why the principal is not an expense. There is no loss of that money, it is translated to an increase in your available equity in the real property and that is where the principal would be accounted for.
Customer: replied 1 year ago.

But Paul the audit could show that an annual net income (before depreciation) is say $700,000 but if a mortgage principal of say $500,000 is not identified as an expense (somehow) the actual net income is only $200,000.


 


And if an annual net loss (before depreciation) of minus $200,000 is identified, because of not including a mortgage principal payment of $500,000, it would appear the corporation would have not an annual loss for that year of $200,000 but a net income of $300,000.

Expert:  Law Educator, Esq. replied 1 year ago.
That is the common sense way people look at things, but that is not how the accounting principles work. You still have the asset of the money paid on your principal, that money has not really been lost, it reduced the principal on the mortgage and increased the equity. Equity is an asset and it can be borrowed against if needed.
Law Educator, Esq., Attorney
Category: Legal
Satisfied Customers: 91883
Experience: JA Mentor -Attorney Labor/employment, corporate, sports law, admiralty/maritime and civil rights law
Law Educator, Esq. and 21 other Legal Specialists are ready to help you
Customer: replied 1 year ago.

PaulMJD; Your words "That is the common sense way people look at things, but that is not how the accounting principles work." to me are worth their weight in GOLD. I'm going to have to use them to help shareholders understand what is going on.


 


Excellent as always......thank you PaulMJD.

Expert:  Law Educator, Esq. replied 1 year ago.
Your association's assets are still there, you need to look at the reports to determine the increase in the equity in their property holdings to find them though. Point them to the equity information, which should be increasing and that should be increasing based on principal paid.
Customer: replied 1 year ago.

What if I find members' equity has not been increased?

Expert:  Law Educator, Esq. replied 1 year ago.
The association's ownership interests and equity should have increased (of course based also on the ups and downs of the real estate market and value of the property) and if you cannot find that then you need to consider bringing a new accountant in to review the books.

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • Mr. Kaplun clearly had an exceptional understanding of the issue and was able to explain it concisely. I would recommend JustAnswer to anyone. Great service that lives up to its promises! Gary B. Edmond, OK
< Last | Next >
  • Mr. Kaplun clearly had an exceptional understanding of the issue and was able to explain it concisely. I would recommend JustAnswer to anyone. Great service that lives up to its promises! Gary B. Edmond, OK
  • My Expert was fast and seemed to have the answer to my taser question at the tips of her fingers. Communication was excellent. I left feeling confident in her answer. Eric Redwood City, CA
  • I am very pleased with JustAnswer as a place to go for divorce or criminal law knowledge and insight. Michael Wichita, KS
  • PaulMJD helped me with questions I had regarding an urgent legal matter. His answers were excellent. Three H. Houston, TX
  • Anne was extremely helpful. Her information put me in the right direction for action that kept me legal, possible saving me a ton of money in the future. Thank you again, Anne!! Elaine Atlanta, GA
  • It worked great. I had the facts and I presented them to my ex-landlord and she folded and returned my deposit. The 50 bucks I spent with you solved my problem. Tony Apopka, FL
  • Not only did he answer my Michigan divorce question but was also able to help me out with it, too. I have since won my legal case on this matter and thank you so much for it. Lee Michigan
 
 
 

Meet The Experts:

 
 
 
  • Tina

    Lawyer

    Satisfied Customers:

    8436
    JD, BBA Over 25 years legal and business experience.
< Last | Next >
  • http://ww2.justanswer.com/uploads/MU/multistatelaw/2011-11-27_173951_Tinaglamourshotworkglow102011.64x64.jpg Tina's Avatar

    Tina

    Lawyer

    Satisfied Customers:

    8436
    JD, BBA Over 25 years legal and business experience.
  • http://ww2.justanswer.com/uploads/RA/ratioscripta/2012-6-13_2955_foto3.64x64.jpg Ely's Avatar

    Ely

    Counselor at Law

    Satisfied Customers:

    19941
    Private practice with focus on family, criminal, PI, consumer protection, and business consultation.
  • http://ww2.justanswer.com/uploads/FL/FLAandNYLawyer/2012-1-27_14349_3Fotolia25855429M.64x64.jpg FiveStarLaw's Avatar

    FiveStarLaw

    Attorney

    Satisfied Customers:

    8189
    25 years of experience helping people like you.
  • http://ww2.justanswer.com/uploads/jespoag/2008-12-17_222355_jessepic.jpg JPEsq's Avatar

    JPEsq

    Attorney

    Satisfied Customers:

    2132
    Experience as general attorney, in house counsel, SSDI, Family Law attorney, and law professor
  • http://ww2.justanswer.com/uploads/gsenmartin/2008-04-22_214950_me1.jpg Guillermo J. Senmartin, Esq.'s Avatar

    Guillermo J. Senmartin, Esq.

    Attorney

    Satisfied Customers:

    110
    7+ years of experience handling various legal matters.
  • http://ww2.justanswer.com/uploads/PA/PaulmoJD/2013-10-10_195858_JAImage.64x64.jpg Law Educator, Esq.'s Avatar

    Law Educator, Esq.

    Attorney

    Satisfied Customers:

    31621
    JA Mentor -Attorney Labor/employment, corporate, sports law, admiralty/maritime and civil rights law
  • http://ww2.justanswer.com/uploads/dkaplun/2009-05-17_173121_headshot_1_2.jpg Dimitry K., Esq.'s Avatar

    Dimitry K., Esq.

    Attorney

    Satisfied Customers:

    15975
    Multiple jurisdictions, specialize in business/contract disputes, estate creation and administration.
 
 
 

Related Legal Questions

Chat Now With A Lawyer
Law Educator, Esq.
Law Educator, Esq.
Lawyer
91883 Satisfied Customers
JA Mentor -Attorney Labor/employment, corporate, sports law, admiralty/maritime and civil rights law