Pogrund Vacation Properties sells real estate in Florida. Pogrund requires poten
ID: 2549504 • Letter: P
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, 2010, 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:
What is the journal entry Pogrund makes to record the receipt of the $10,000 good faith deposit on December 31, 2019?
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?
What is the journal entry Pogrund makes on June 30, 2020 when David notifies Pogrund that it is terminating the contract?
Explanation / Answer
JOURNAL ENTRY
ON DECEMBER 31, 2019
BANK/CASH ACCOUNT $ 10000 DR
TO DEPOSIT ACCOUNT $ 10000 CR
(BEING AMOUNT RECEIVE FOR GOOD FAITH DEPOSIT )
MARCH 31, 2020
BANK/CASH ACCOUNT $ 85000 DR
TO DEPOSIT ACCOUNT $ 85000 CR
(BEING ADDITIONAL DEPOSIT RECEIVE FOR SIGNING PROPERTY CONTRACT)
JUNE 30 ,2020
DEPOSIT ACCOUNT $ 95000 DR
TO PROFIT & LOSS/ INCOME ACCOUNT $ 95000 CR
(BEING CONTRACT IS TERMINATED BY DAVID CORPORATION, AMOUNT FORFIETED)
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