Question

Analyze each these personal financial transactions and determine their impact on your client's balance sheet:

Case 2 1 Peter and Patricia Morgan 25 S1 LIEU $2 STATEMENT OF FINANCIAL POSITION Peter and Patricia Morgan As of January 1, 2017 Assets Liabilities and Net Worth? Cash/Cash Equivalents Liabilities JT Cash (money market) $ 120,000 Current: Credit card 1 15,000 Credit card 2 21,000 Total Cash/Cash Equivalents $ 120,000 Credit card 3 24,000 Auto 1 balance 30,000 Invested Assets S2 Auto 2 balance 30,000 Publications, Inc. $ 900,000 Current liabilities 120,000 Patricia's Advertising, Inc. 300,000 Patricia's investment portfolio 270,000 Long-term: (see detail) S1 Single premium deferred annuity 332,403 Mortgage-primary $ 450,000 (SPDA) S1 Peter's investment portfolio (IRA) 600,000 Mortgage-vacation 360,000 S1 Defined benefit plan (vested) 1,200,000 Long-term liabilities $ 810,000 Total investments $3,602,403 Personal Use Assets Total liabilities 930,000 JT Primary residence 900,000 JT Vacation home 540,000 Personal property and furniture 300,000 Net Worth $4,658,403 Auto 1 60,000 Auto 2 66,000 Total Personal Use $1,866,000 $5,588,403 Total Liabilities and Net Worth $5,588,403 Total Assets Notes to financial statements All assets are stated at fair market value. Liabilities are stated at principal only. Fair market value of $100,000 for the lot is included. Fair market value of $80,000 for the lot is included. Titles and Ownership Information S1 = Peter's separate property S2 = Patricia's separate property JT - Joint husband and wife (with survivorship rights)

1. Your client buys a $50,000 car with a 20% down payment at a 6% interest rate.
2. Your client buys an antique with a market value of $5,000 and pays $3,500 in cash for it.
3. Your client's investments earn $22,000 in this bull market.
4. Your client refinances their current 30 years mortgage to a 15-year mortgage and amortizes all closing costs. The mortgage is $450k, and closing cost is 3%.

Answer 1

1- Client Buys a 50,000$ Car with a 20% downpayment at a 6% Interest rate

The client is buying a car on Credit with a downpayment of 20%.

The Credit is indirectly called a Loan on which the customer has to pay a interest too.

So the impact on Balance Sheet will be as follows:

Car / Auto will increase by $50,000

Cash will reduce by 10,000 (50,000*20%) for the downpayment

And a Loan will be created for 40,000$ on which an interest of 6% will be charged which will get updated in the Profit and Loss Account.

2- Buys an Antique with a market value of 5000$ and pays 3500$ in cash.

This transaction has been done partly in credit and partly in cash.

So The Asset Side will increase by 5000$

Cash will reduce by 3500$ and Creditors will increase by 1500$ which will balance both the sides of the Balance Sheet.

3- Investments increase by 22000$

This transaction is a non cash transaction which is treated as an Unrealised profit.

So it actually isnt a Cash gain but a paper gain which hasn't materialised.

In this case the profit's in the Profit and Loss Account will increase by 22000 and Investment will be revalued according to the market at 22000 balancing both the sides.

4- Refinancing of Mortgage.

In terms of Mortgage Representation there will only be a change in name from 30- year to 15- year. And the closing cost of 3% on a Mortgage Loan of 450k which is (450,000*3%) will be amortised on the Profit and Loss Statement thereby reducing profit and Cash Balancing the Balance Sheet on both the sides