The Purpose Of This Exercise Is To Review The Fundamentals ✓ Solved

The Purpose Of This Exercise Is To Review The Fundamentals Of Accounti

The purpose of this exercise is to review the fundamentals of accounting for real estate transactions. You are to create a general ledger, build a chart of accounts, journalize each transaction, post the transactions to appropriate accounts, draw a trial balance, and prepare financial statements including an income statement, balance sheet, and cash flow statement. Additionally, you will identify cash versus accrual differences, and prepare closing entries.

You are a property investor purchasing a small 100,000 square foot strip shopping center in Westchester County, closed on 1/1/2007. The center has three leased stores: a clothing store (10,000 sf), a drug store (30,000 sf), and a supermarket (60,000 sf). The purchase price is $15 million, financed through a partnership contribution, external financing from friends and family, and bank debt. The purchase attributes 30% of the value to land, with the remainder assigned to depreciable buildings over 39 years. Rents, taxes, insurance, utilities, repairs, and other expenses are specified, along with tenant lease terms, including a tenant replacement and additional lease parameters. The exercise includes recording these transactions and their effects on financial statements, considering accrual versus cash accounting, and understanding the flow of accounting for real estate investments.

Sample Paper For Above instruction

Accounting Exercise for Real Estate Transactions

The goal of this comprehensive accounting exercise is to guide students through the fundamental processes involved in recording and analyzing real estate transactions. The steps include constructing a detailed general ledger, developing an accurate chart of accounts, journalizing transactions, and posting these to the relevant accounts. Subsequent tasks involve creating a trial balance to ensure ledger accuracy, and preparing key financial statements such as the income statement, balance sheet, and cash flow statement. Furthermore, the exercise emphasizes the importance of distinguishing between cash and accrual accounting methods and concludes with preparing closing entries to finalize the accounting cycle.

This exercise is rooted in a hypothetical scenario of purchasing a small strip shopping center in Westchester County. The transaction occurs on January 1, 2007, involving a 100,000 square foot property with three tenants: a 10,000 sf clothing store, a 30,000 sf drug store, and a 60,000 sf supermarket. The purchase price is set at $15 million, financed through a mixture of partnership equity, external borrowing, and contributions from investors. The allocation of purchase price between land and buildings adheres to the specified percentages, with buildings depreciated over 39 years. Income and expenses—including rents, taxes, insurance, utilities, repairs, and legal fees—are meticulously outlined to replicate realistic accounting entries.

The educational process involves journalizing each transaction, from mortgage payments to tenant lease agreements, and capturing nuances such as late rent fees, tenant closures, tenant improvements, brokerage commissions, management fees, and split accounting methods (cash versus accrual). Students will also analyze the impact of different transactions on cash flows versus accrued revenues, reinforcing understanding of financial statement functionalities and adjustments needed at month-end, quarter-end, or year-end. Finally, the task culminates in preparing closing entries to reset temporary accounts, ensuring accounts are balanced for subsequent periods.

References

• Power of Ideas, textbook on accounting fundamentals and real estate transactions.
• JSTOR journal articles on advanced real estate accounting practices.
• Philip Ivanhoe and Bryan Van Norden, Readings in Classical Chinese Philosophy.
• Hansen, Chad. Daoist Theory of Chinese Thought. Oxford University Press, 1992.
• Hall, David, and Roger Ames. Thinking from the Han. SUNY Press, 1998.
• Cooper, John M., editor. The Complete Works of Plato. Hackett Publishing, 1997.
• Jaspers, Karl. Socrates, Buddha, Confucius, Jesus. Hannah Arendt, editor. Harcourt, Brace & World, 1957.
• Power of Ideas, textbook section on accounting concepts and processes.
• Ivanhoe, Philip, and Bryan Van Norden. Readings in Classical Chinese Philosophy, Hackett Publishing, 2003.
• Accounting Principles, 12th Edition, by N. Gregory Nason, for foundational accounting methods.