Real Estate Accounting

Transcription

1 Real Estate Accounting Course Instructions and Final Examination The CPE Store 819 Village Square Drive Tomball, TX

2 Real Estate Accounting Table of Contents Page Course Objectives... 3 Course Instructions... 3 Final Examination

3 COPYRIGHT 2014 The CPE Store ALL RIGHTS RESERVED No portion of this material may be reprinted, reproduced, transmitted, stored in a retrieval system, or otherwise utilized, in any form or by any means, electronic or mechanical, including photocopying or recording, now existing or hereinafter invented, nor may any part of this course be used for teaching without written permission from the publisher and the author

4 Course Objectives After completing this course, you will be able to: Identify the four types of residential property Determine what type of properties include manufacturing plants and warehouse facilities Recognize the equation for equity Spot the correct description of an expense Recognize the four main types of financial statements Recognize the description of a sole ownership Identify the description of a partnership Determine how a real estate investment trust is taxed Identify the correct description of a gross lease Determine how an operating expenses gross-up clause helps landlords Recognize the three main types of subleases Pinpoint how property tax costs should be accounted for Determine how insurance premiums that are paid in advance should be recorded Pinpoint when to apply sales and use taxes to rental income Recognize a recoverable operating expense Determine how a landlord typically recovers capital improvements costs Recognize how a landlord accounts for tenant improvements Identify the components of the executive summary of a budget Recognize which detail budget item represents the owner s periodic payments to the lender on a loan Determine how a well-prepared variance analysis should be formatted Identify the main scenario for which market research would be used Recognize the criterion which determines what type of buildings exist in different parts of the community Identify two commonly used income approaches in the real estate valuation industry Determine the type of property typically valued using the sales comparison approach Identify the most common lenders for real estate loans Recognize the description of a conventional loan Spot one of the most common financing costs Identify the method of accounting which is recommended for real estate investments, interests in joint ventures, certain general partnerships, limited partnerships, and undivided interests Pinpoint one of the five items that the purchase price of the buyer is allocated to Recognize the description of the predevelopment stage of a real estate development project Identify how costs incurred during the development stage of a project should be handled Determine the two main conditions that must exist before the full accrual method of revenue recognition can be used Recognize criteria which must be met for a project to be recorded using the percentage-of-completion method Recognize a common type of audit in the real estate industry Identify a reason tenants are sometimes allowed to audit the landlord s books Course Instructions To fully benefit from this course, please follow all of the steps below. 1. Read each chapter in the text to get a good understanding of the material. 2. Answer the study guide problems which appear at the end of each chapter. After answering the problems, compare your answers with the correct answers to ensure that you understand the material. 3. When you feel that you have a good understanding of the material contained in the chapter, answer the questions on the final examination. 4. When you have completed the final examination, record your answers on the answer sheet provided and submit it for grading. A score of 70% or better is required to pass. Please also complete the course evaluation that accompanied the course and submit it to us along with your answer sheet. Upon passing you will receive a Certificate of Completion stating that you have successfully completed the course and earned the continuing education credit

5 Prerequisites and Advance Preparation No prerequisites or advance preparation are required for this course. CPE Credit This course is recommended for 10 CPE credits. Final Exam Grading Online: By Mail: By Fax: Our fastest option, with instant results. Simply go to and click the link for online grading. Just follow the instructions from there. When you finish entering your answers, you ll receive instant test results and a Certificate of Completion to print. Mail your test and course evaluation to us. We grade the tests the day we receive them and mail the results and Certificate of Completion to you the following business day. Please use this option only if you need fast turnaround (we want to keep this as a free service). Just fax your answer sheet to If you need us to fax the Certificate of Completion back to you, please provide us with your fax number and write please fax back on your answer sheet. If you don t need the Certificate faxed back, please write no fax needed on your answer sheet. Refunds The CPE Store guarantees your satisfaction. If, for any reason, you are not completely satisfied with your purchase, return it to us unused within 30 days for a prompt refund, no questions asked. (Sorry, but shipping fees are not refundable.) Customer Service The CPE Store holds itself to the highest standards. If we have not met your expectations, something is missing, or you just have a question please contact us at or customerservice@cpestore.com. About Our Courses The CPE Store's courses are developed to satisfy the continuing education requirements of the American Institute of Certified Public Accountants, each state's Board of Accountancy and the National Association of State Boards of Accountancy (NASBA). If your state requires registration of sponsors, our sponsor number will appear on your Certificate of Completion. Our courses are designed to meet the continuing education requirements of accounting professionals. A great deal of care has been taken to ensure that the course material is both interesting and relevant to the practice of accounting. The information presented is, to the best of our knowledge, current and accurate. However, The CPE Store is not in the business of rendering legal, accounting or other professional advice and as such, the material presented in our courses is intended as an overview. If legal advice or other expert assistance is required, the services of a competent professional should be sought

6 Real Estate Accounting 10-Hour Course Final Examination A score of 70% or higher is required to pass the exam. If you score less than 70% on your first attempt, we will allow you to take the test a second time. Chapter 1 Introduction to Real Estate 1. Which of the following is one of the seven different types of real estate? A. Garden apartment buildings B. Malls C. Irrigation D. Mixed use properties 2. What are the four types of residential property? A. Convenience centers, community shopping centers, specialty centers, off-price outlets and discount centers B. Single-family and small multifamily properties, garden apartment buildings, mid-rise apartment buildings, and high-rise apartment buildings C. Full-service hotels, boutique hotels, extended-stay hotels, and motels D. Commercial office properties, retail properties, hotels, and mixed use properties 3. What type of property includes manufacturing plants and warehouse facilities? A. Retail properties B. Mixed use properties C. Commercial office properties D. Industrial properties 4. Which type of hotel property is a small lodging property whose doors face a parking lot and/or common area with small rooms? A. Full-service hotels B. Boutique hotels C. Motels D. Extended-stay hotels Chapter 2 Basic Real Estate Accounting 5. A location within an accounting system in which the debit and credit entries are recorded is known as what? A. An account B. An expense C. A trial balance D. An asset 6. Probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or evens are called? A. Liabilities B. Accounts C. Assets D. Expenses 7. Which of the following is the equation for equity? A. Equity = Assets + Liabilities B. Equity = Assets - Liabilities C. Equity = Liabilities - Assets D. Equity = Liabilities / Assets - 5 -

7 Final Exam 8. Which of the following is a description of expenses? A. The inflow of assets received in exchange for goods or services provided to customers as part of the major or central operations of the business B. Amounts received or receivable from sale of assets at less than the book value C. The entity owners' net stake in the business entity D. Outflows or the using up of assets as a result of the major or central operations of a business 9. What type of accounting is a method of bookkeeping in which revenues are recognized when the related cash is received and expenses are recorded when cash is paid? A. Cash basis accounting B. Accrual basis accounting C. Single-entry bookkeeping D. Double-entry bookkeeping 10. What are the four main types of financial statements? A. General Ledger, Trail Balance, Partnership Agreement, and Statement of Cash Flows B. Source Documents, General Ledger, Balance Sheet, and Income Statement C. Income statement, Balance Sheet, Statement of Changes in Shareholders' Equity, and Statement of Cash Flows D. Trial Balance, Balance Sheet, Partnership Agreement, and Income Statement Chapter 3 Forms of Real Estate Organization 11. Which of the following is a description of sole ownership? A. Ownership is in the name of two or more individuals B. The organization is a separate legal entity C. Ownership is in the name of one individual D. Taxes on the organization are levied only on the individual shareholder level and not at the corporate level 12. Which of the following is a description of a partnership? A. A partnership is a separate legal entity from its owners and is chartered under state or federal law B. A partnership is an unincorporated entity and does not have any specific statutory law governing them in the U.S. federal government C. A partnership member cannot sell, pledge, or transfer his or her interest D. Partnerships were created by congress to allow all investors a way to invest in a diversified portfolio of commercial properties 13. What is an arrangement among two or more parties to carry out one project or a series of related transactions over a short period of time called? A. Real estate investment trust B. Partnership C. Corporation D. Joint venture 14. How is a real estate investment trust (REIT) taxed? A. It is not taxed B. Both the organization and the shareholder must pay taxes C. Only the REIT must pay taxes and not the individual shareholder D. Taxes are levied only at the individual shareholder level Chapter 4 Accounting for Operating Property Revenues 15. Which of the following is a description of a gross lease? A. The tenant pays a minimum base rent in addition to the tenant's proportionate share of the operation expenses and real estate taxes B. The tenant pays a gross amount that covers the base rental plus operating expenses C. A lease arrangement in which the tenant pays a specified amount that covers the rental of the premises, including the operating expenses and real estate taxes (the landlord bears the risk of future tax and operating cost increases) D. During the base year the tenants pay a whole amount that represents the rental of the property plus a pro rata share of the operating expenses for the year - 6 -

8 Final Exam 16. A lease in which the tenant pays a whole amount during the base year that represents the rental of the premises plus the tenant s pro rata share of operating expenses during that year is called what? A. Sublease B. Base-year lease C. Fixed base lease D. Net lease 17. What does an operating expenses gross-up clause help landlords do? A. Recover variable operating expenses due to building vacancies B. Charge retail clients for a portion of their sales C. Prevent early lease termination D. Replace the original lessee with a sublessee 18. Which of the following is not one of the three main types of subleases? A. A sublease in which the original lessee sublets the premises, but remains liable under the terms of the original lease B. A sublease in which the new lessee replaces the original lessee and the original lessee may, or may not, be secondarily responsible C. A sublease in which the original lease is cancelled and a new lease is created with a new lessee D. A sublease in which someone other than the tenant is responsible for paying the rent Chapter 5 Accounting for Operating Property Expenses 19. How should property tax costs be accounted for? A. They should be billed directly to the tenant B. They should be expensed over the applicable tax period C. They should be capitalized and amortized over the tax year D. They should be recorded as an asset when paid and amortized over the tax year 20. How should insurance premiums that are paid in advance be recorded? A. Reported as a prepaid expense and amortized over the coverage period B. They should be expensed over the applicable coverage period C. They need not be recorded until the end of the coverage period D. They should be capitalized and amortized over the term of the coverage 21. The fee paid to an attorney for drafting the tenant lease is considered to be which of the following? A. Closing costs B. Management fees C. Legal fees D. Sales and use taxes 22. How do sales and use taxes apply to rental income? A. They don't, rental income is exempt from sales and use tax B. They are charged back to the tenants C. They are recorded as assets when paid and then amortized over the tax period D. They need not be recorded under GAAP Chapter 6 Operating Expenses Reconciliation and Recoveries 23. Which of the following is typically a recoverable operating expense? A. Interest on loans B. Income taxes C. Advertising and promotional costs D. Repairs and maintenance 24. How does a landlord typically recover capital improvement costs? A. By charging tenants a pro-rated portion of the capital improvement B. By selling the property C. Through amortization over the beneficial period of the improvement D. Capital improvement costs can never be recovered - 7 -

9 Final Exam Chapter 7 Lease Incentives and Tenant Improvements 25. How should a landlord account for tenant improvements? A. They should be expensed and a pro-rata portion should be charged to each tenant B. They should be capitalized and depreciated over the useful life of improvement C. They should be expensed, but the landlord may not charge a portion of the expense to each tenant D. They need not be recorded until the property is sold Chapter 8 Budgeting for Operating Properties 26. What makes up the executive summary of a budget? A. Brief description of the entity and assets, discussion of key goals and objectives, organizational chart, and a brief market overview and discussion of the economic conditions B. Detail of the anticipated operating expenses C. The terms under which the tenant and landlord operate D. A summary of the property's tax statements 27. Which detail budget item represents the owner's periodic payments to the lender on a loan? A. Capital expenditures B. Operating expenses C. Revenues D. Debt servicing Chapter 9 Lease Incentives and Tenant Improvements 28. How should a well-prepared variance analysis be formatted? A. It should include only the actual results B. It should break down the numbers so that meaningful budget categories can be compared to actual results C. It should include only the total budget figure and the total of the actual results D. It should express the difference between the budgeted figures and the actual figures as a percentage Chapter 10 Market Research and Analysis 29. Which of the following is a main scenario in which market research would be used? A. Investors or developers with a known site are evaluating the highest and best use of a site B. A landlord is comparing actual operating expenses to budgeted operating expenses C. A landlord needs a formal business plan against which future activities can be evaluated D. A tenant wishes to sublease his or her apartment to someone else 30. Which market research factor is important because it brings people from all corners to the neighborhood? A. Education level B. Crime rate C. Competing projects D. Access to transportation 31. Which of the following determines the type of buildings that exist in different parts of the community? A. Zoning B. Home ownership culture C. Competing projects D. Employment Chapter 11 Real Estate Valuation and Investment Analysis 32. What question does real estate valuation answer? A. How much is this property worth today? B. Who owns this property? C. How is this property zoned? D. What is the demographic of people leaving near this property? - 8 -

10 Final Exam 33. What are the two commonly used income approaches in the industry? A. Discounted cash flow (DCF) and direct capitalization B. Sales comparison and cost C. Direct capitalization and cost D. Market research and discounted cash flow (DCF) 34. What type of property is typically valued using the sales comparison approach? A. Income producing properties B. One and two family residential properties C. Commercial real estate D. Undeveloped land 35. Which of the following is a description of the cost approach of real estate valuation? A. Based on the assumption that the asset's value is based on its income-producing ability B. Determined by comparing the subject property to recent similar properties sold in that market C. Based on the assumption that investors look at the fair value of real estate as the cost to develop a new or substitute property similar to the subject property D. Based on the demographic of the area around the real estate Chapter 12 Financing of Real Estate 36. Which of the following is not one of the most common lenders for real estate loans? A. Commercial banks B. Relatives and friends C. Pension funds D. Life insurance firms 37. Which of the following is a description of a conventional loan? A. The loan is guaranteed by a third part B. The loan is based upon the borrower's ability to pay their debt obligations and also the equity in the financed asset. C. A bond sold to an investor that is secured by a mortgage cash flow D. The use of the investor's own capital and capital from other investors to purchase real estate 38. Which of the following is one of the most common financing costs? A. Interest on loans B. Property taxes C. Management fees D. Application fee Chapter 13 Accounting for Real Estate Investments and Acquisition Costs 39. What method of accounting is recommended for real estate investments, interests in joint ventures, certain general partnerships, limited partnerships, and undivided interests? A. Cost method B. Consolidation method C. Equity method D. Fair market value method 40. Which of the following is one of the five items that the purchase price of the buyer should be allocated to? A. The value of surrounding properties B. Value of in-place leases C. The amenities located near the property D. The safety of the property - 9 -

11 Final Exam 41. If the total value of the assets that make up a property is less than the purchase price, how should it be accounted for? A. The difference in value should be allocated to reduce the value of the various components of the property based on their relative values B. The difference in value should be allocated to increase the value of the various components of the property based on their relative values C. The total value of the assets doesn't make any difference in the value of the property D. The difference should be used to reduce the value of the buildings only Chapter 14 Accounting for Project Development Costs on GAAP Basis 42. Which of the following is a description of the predevelopment stage of a real estate development project? A. The period prior to the start of the construction of the project B. The period with the most activities and costs C. The period when the project is substantially complete and is ready for its intended use D. The period during which tenants move in and tenant issues must be dealt with 43. How should costs incurred during the development stage that are not clearly associated with the project be handled? A. They should be capitalized B. They should be deferred C. They should be expensed D. They should be amortized over the period 44. The stage at which a real estate development project is substantially complete and is ready for its intended use is known as what? A. Predevelopment stage B. Postdevelopment stage C. Development stage D. Research stage Chapter 15 Development Project Revenue Recognitions 45. What are the two main conditions that must exist before the full accrual method of revenue recognition can be used? A. There is no profit and the sale has not yet been consummated B. The buyer's initial minimum criteria were not met and the cost of the property could be recovered by reselling the property C. The project has sufficient units sold to ensure that the project will not regress to rental and the agreed-on sales price of the units of interest should be determinable and collectible D. The profit can be reasonably determined and the seller's obligation to the buyer is complete 46. Which of the following is one of the two conditions under which the installment method of accounting for profit is appropriate? A. The cost of the property could be recovered by reselling the property in the event the buyer is not able to fulfill his or her obligation B. The project has sufficient units sold to ensure that the project will not regress to rental C. There is no profit and the sale has not yet been consummated D. The agreed-on sales price of the units of interest should be determinable and collectible 47. Which of the following is not one of the five criteria that must be met for a project to be recorded using the percentage-of-completion method? A. The cost of the property could be recovered by reselling the property in the event the buyer is not able to fulfill his or her obligation B. The construction project has passed the preliminary stage C. The buyer is committed to the extent of being unable to require a refund except for non-delivery of the unit or interest D. The total aggregate sales amounts and costs for all the units can be reasonably determined

12 Final Exam Chapter 16 Audits 48. Which of the following is not a main user of financial reports? A. Investors B. Lenders C. Public utilities D. Customers 49. Which of the following is one of the four common types of audits in the real estate industry? A. Quality audits B. Energy audits C. Internal control audits D. Environmental safety audits 50. Why are tenants sometimes allowed to audit the landlord's books? A. A tenant audit must occur every four years B. Tenants can never audit the landlord's books C. To check the accuracy of the financial statements D. The terms of the lease allow it Thank you for taking our course. We hope you enjoyed it

13 Real Estate Accounting Course Number: AA Qualifies for 10 hours of CPE credit If you are mailing or faxing your test to us for grading, please fill in Member ID and Validation number. Name as it should appear on your Certificate: Where should we send your results? License State(s): License Number: Date Course Completed: * Answer each question A, B, C, or D, as appropriate. * Be sure you are answering questions from the Final Examination, not from the Study Guide * For instant online grading, go to and click the link for Online Services Page 1 of 1

14 The CPE Store 819 Village Square Drive Tomball, TX Phone Fax Course Evaluation Course # Your Name About the Service Course Were the stated learning objectives met? If applicable, were prerequisite requirements appropriate and sufficient? m N/A Was the text well-written, accurate and easy to understand? Was the final exam well-written, accurate and easy to understand? Were course materials relevant and did they contribute to the achievement of the learning objectives? Was the time allotted to the learning activity appropriate? If applicable, were the individual instructors effective? m N/A About the Service Were you satisfied with the ordering process? Were your course materials in good condition when they arrived? Did you receive your materials in a timely manner? About You What is your preferred method for completing your CPE? m Textbook m PDF materials downloaded from the internet m Online courses m Live seminars Would you like us to notify you by of our weekly specials and new courses? m No m Yes, my address is m Already receiving Comments Please Are there any particular topics you would like to see covered in a CPE course or any additional services you would like to see us provide? Please provide any additional feedback, either positive or negative, regarding our products or our service: