Question

Which one of the following statements relating to mortgage notes payable is not correct?

A. Mortgage notes payable are the most common form of long-term notes payable.
B. A mortgage note payable is a promissory note secured by a document that pledges title to property as security for the loan.
C. Mortgage notes payable are payable in full at maturity or in installments.
D. Mortgage notes payable are always reported as a long-term liability.

Answer 1

Mortgage notes payable can be reported as both short-term and long-term liabilities, depending on the timing of the repayments. The incorrect statement is that they are always reported as a long-term liability, as the portion due within the next year is considered a current liability.

Step-by-step explanation:

The statement relating to mortgage notes payable that is not correct is D. Mortgage notes payable are always reported as a long-term liability. Mortgage notes payable can be classified as long-term or short-term depending on when they are due. For instance, a portion of the mortgage that is due within the next 12 months is typically reported as a current liability, while the remainder that is due beyond 12 months is reported as a long-term liability.

Mortgage notes payable are a form of loan where property is used as collateral to secure the loan, and they can be repaid in installments or in full at maturity. It is important to understand that how a mortgage is classified on a balance sheet depends on the timing of the repayments. The statement D would only be correct if it specified that the portion of the mortgage payable after one year is always reported as a long-term liability.