Pogrund Vacation Properties sells real estate in Florida. Pogrund requires poten

Question

Pogrund Vacation Properties sells real estate in Florida. Pogrund requires potential buyers who are interested in a property to remit a $10,000 deposit to show good faith before receiving detailed information about a property. The deposit is fully refundable until a contract is signed. When a contract is signed, the buyer must make an additional deposit to bring the total deposit up to 10% of the purchase price. At that point, the entire deposit becomes nonrefundable.

On December 31, 2019, David Corporation makes a good faith deposit of $10,000. David makes an additional $85,000 deposit on March 31, 2020, when it signs a contract to purchase property from Pogrund for $950,000, bringing its total deposit up to 10% of the purchase price.

On June 30, 2020, David Corporation informs Pogrund that it has decided to terminate the contract, as is its right, and will not complete the purchase of the property. Under the terms of the contract, the entire deposit was nonrefundable and is retained by Pogrund.

Required:

1. What is the journal entry Pogrund makes to record the receipt of the $10,000 good faith deposit on December 31, 2019?

2. What is the journal entry Pogrund makes on March 31, 2020 to record the receipt of an additional $85,000 from David Corporation when it signs the contract?

3. What is the journal entry Pogrund makes on June 30, 2020 when David notifies Pogrund that it is terminating the contract?

Explanation / Answer

In books of Pogrund Date Particulars Dr Cr 31-Dec-19 Bank 10000 Customer Deposit - David Corporation 10000 31-Mar-20 Bank 85000 Customer Deposit - David Corporation 10000 Unearned Revenue 95000 30-Jun-20 Unearned Revenue 95000 Income from termination of contract 95000

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