USA Asset purchase with equity

[Lowell]

Hi folks,

Can someone please guide me on this?

I bought a property for $138k (appraised value)
I put $0 down, and have a mortgage at $103.5k
How do I record the equity so my balance sheet is accurate?
Here's what I have so far:

Debit Fixed asset $138k
Credit Long Term Liability $103.5k

What account does the $34.5k Credit go to?

Thanks!

 

[Werner Reisacher]

Was the purchase price you actually paid for the property equal to the appraised value ($ 138K) ?
If so, there is a gap between the money you borrowed $ 103.5 K (mortgage) and the cash you had to pay $ 138 K (purchase price). Who provided the funds to cover that gap? The answer to this question will tell you to which account the missing $ $34.5 K have to be credited.
Fixed Assets (properties) are valued at lower of cost or market. The price you paid for the property is the "cost", and the purchase price you agreed to established its new market value.

 

[kirby]

If you put zero down then the mortgage amount is the COST of fixed asset.

Debit Fixed Asset $103.5K
Credit Long Term Liability $103.5K

If you were to sell the property immediately for appraised value your entry (excluding closing costs) would be

Debit Cash $138K
Credit Fixed Asset $103.5K
Credit Gain on sale $34.5K

and so at sale you would record that $34.5K that you are missing - but not until then.

 

[Werner Reisacher]

This assumes that the actual purchase price was $ 103.5 K. Otherwise, recording the acquisition at a lower price would generate an unnecessary taxable gain at the time of the sale.

 

[kirby]

A zero-down-payment mortgage is a loan for a home purchase that requires no money down from the buyer. The borrower obtains a mortgage for 100 percent of the purchase price.

Above is a definition from a banking website. So no “assumes” is logical nor necessary in the case of this post. By definition, please see italics above, in a zero down loan the amount is 100% of the purchase price.

 

[Werner Reisacher]

And as always, the devil is again in the detail. I stumbled over the "zero-down-payment". Kirby, you are absolutely correct. Thanks for reminding me.

 

[kirby]

 

[Lowell]

Thanks for the replies... but still 100% unclear haha. This was a cash-out refinance. It's technically a "purchase" for my business as the business owns the property now, whereas I owned it personally before the refinance.

Property appraised for $138k
Got mortgage of $103.5k
$0 down (I actually made $19k cash tax free on this refinance because I was all-in for $84.5k)

I'd simply like to show the $34.5k of equity on my balance sheet. How do I do so? Or is fixed asset equity not something that can be show in such a scenario?

 

[Lowell]

Reading replies again... is Kirby's reply the final sentiment?

 

[kirby]

Yes

 

[Lowell]

Okay so a balance sheet does not show fixed asset equity?

 

[kirby]

Correct.