Table of Contents

Chapter 1 - Introduction to Accounting. 1

Financial Accounting Basics. 1

Accounting Frameworks. 2

The Accounting Cycle. 3

Accounting Transactions. 4

Types of Transaction Cycles. 4

Source Documents. 5

Double Entry Accounting. 5

The Accounting Equation. 6

Journal Entries. 8

The Ledger Concept 9

Posting to the General Ledger. 10

General Ledger Overview.. 11

The Accruals Concept 12

The Realization Concept 12

Accrual Basis of Accounting. 13

Cash Basis of Accounting. 13

Real Estate Entities. 14

Sole Proprietorship. 14

Partnership. 15

Corporation. 16

Limited Liability Company. 18

The Following Chapters. 18

Chapter 2 - Initial Real Estate Costs. 20

Relevant Accounting Sources. 20

Capitalization. 20

Real Estate Preacquisition Costs. 21

Treatment of Preacquisition Costs. 21

Operating and Non-Operating Classifications. 22

Internally-Generated Preacquisition Costs. 22

Real Estate Project Costs. 22

Real Estate Taxes and Property Insurance. 23

Real Estate Interest Costs. 23

Assets for Which You Must Capitalize Interest 24

Assets for Which You Do Not Capitalize Interest 25

The Interest Capitalization Period. 25

The Capitalization Rate. 26

Calculating Interest Capitalization. 27

Impact of Financing on Property Purchase Price. 29

Costs Allocated to Real Estate Projects. 29

Real Estate Donated to the Government 31

Changes in Estimates. 31

Changes in Expected Use. 31

Project Abandonment 31

Real Estate Selling Costs. 32

Capitalized Selling Costs. 32

Capitalized Advertising Costs. 32

Selling Costs Charged to Expense. 33

Real Estate Rental Costs. 33

Real Estate Incidental Operations. 34

Initial Rental Operations. 34

Real Estate Amenities. 34

Startup Costs. 35

Presentation and Disclosure Topics. 35

Classifications within the Statement of Cash Flows. 36

Public Company Disclosures. 36

Capitalized Interest Disclosures. 37

Imputed Interest Disclosures. 37

Chapter 3 - Purchase of Income-Producing Property. 40

Relevant Accounting Sources. 40

Overview of Business Combinations. 40

Identifiable Assets and Liabilities, and Noncontrolling Interests. 42

Goodwill or Gain from Bargain Purchase. 43

Goodwill Calculation. 43

Bargain Purchase. 44

Purchase of Assets. 45

Amortization of Intangibles. 46

Goodwill 46

Goodwill Amortization. 49

Presentation and Disclosure Topics. 49

General Disclosures. 50

Identifiable Assets and Liabilities, and any Noncontrolling Interest 50

Goodwill or Gain from Bargain Purchase. 51

Goodwill Disclosures. 51

Chapter 4 - Real Estate Sales. 54

Relevant Accounting Sources. 54

Replacement of the Accounting Standards. 54

Step One: Link Contract to Customer 55

Step Two: Note Performance Obligations. 55

Step Three: Determine Prices. 55

Step Four: Allocate Prices to Obligations. 56

Step Five: Recognize Revenue. 56

What Constitutes a Real Estate Sale?. 56

Full Accrual Method Revenue Recognition. 57

Buyer’s Commitment to Pay. 58

Profit Recognition Not Using the Full Accrual Method. 60

Sale is Not Completed. 61

Buyer’s Initial Investment Does Not Qualify. 61

Buyer’s Continuing Investment Does Not Qualify. 61

Receivable is Subject to Future Subordination. 61

Continuing Seller Involvement 62

Decision Tree for Use of Methods. 64

Revenue and Profit Recognition Methods. 65

Installment Method. 65

Cost Recovery Method. 66

Reduced-Profit Method. 68

Percentage-of-Completion Method. 69

Deposit Method. 69

Financing Method. 70

Leasing Method. 71

Profit-Sharing Method. 71

Real Estate Project Recoverability. 71

Derecognition of Real Estate Project Costs. 72

Real Estate Held-for-Sale. 73

Presentation and Disclosure Topics. 74

Chapter 5 - Retail Land Sales. 77

Relevant Accounting Sources. 77

Retail Land. 77

Full Accrual Method. 78

Percentage-of-Completion Method. 80

Installment Method. 82

Deposit Method. 84

Presentation and Disclosure Topics. 86

Chapter 6 - Nonmonetary Exchanges. 88

Relevant Accounting Sources. 88

Overview of Nonmonetary Transactions. 88

Exchanges Involving Monetary Consideration. 90

Exchanges of a Nonfinancial Asset for a Noncontrolling Ownership Interest 93

Spin-off Transactions. 93

Like-Kind Exchanges. 93

Presentation and Disclosure Topics. 94

Chapter 7 - Time-Sharing Activities. 97

Relevant Accounting Sources. 97

Time-Share Characteristics. 97

Criteria for Revenue Recognition. 98

Buyer’s Initial Investment 98

Buyer’s Continuing Investment 99

Sales Value. 99

Revenue Recognition Methods. 101

Full Accrual Method. 101

Percentage-of-Completion Method. 101

Deposit Method. 101

Cost Recognition. 101

Additional Time-Share Transactions. 106

Additional Products and Services. 106

Treatment of Selling Costs. 107

Effects of Below-Market Financing. 108

Estimating Uncollectible Receivables. 108

Debt Restructurings. 109

Deferral of Rental Costs. 109

Upgrade Transactions. 110

Reload Transactions. 110

Payments by Seller to Support Operations. 110

Management Services. 111

Operation of Affinity Programs. 111

Holding Period. 111

Impairment 111

Accounting Changes and Error Corrections. 112

Special-Purpose Entities. 112

Assumptions and Sales of Debt 113

Leases. 113

Presentation and Disclosure Topics. 113

Chapter 8 - Rent Topics. 116

Relevant Accounting Sources. 116

Types of Leases. 116

Contingent Rent 117

Lease Incentives. 117

Leasehold Improvements. 118

Prepaid Rent 118

Straight-Line Rent 119

Operating Expense Issues. 120

Sub-Leases. 121

Presentation and Disclosure Topics. 122

Chapter 9 - Asset Retirement and Environmental Obligations. 124

Relevant Accounting Sources. 124

Overview of Asset Retirement Obligations. 124

The Initial Measurement of an Asset Retirement Obligation. 125

Subsequent Measurement of an Asset Retirement Obligation. 126

Settlement of an Asset Retirement Obligation. 127

Overview of Environmental Obligations. 129

Measurement of Environmental Obligations. 130

Recoveries Related to Environmental Obligations. 132

Presentation and Disclosure Topics. 132

Asset Retirement Obligations. 132

Environmental Obligations. 133

Chapter 10 - Real Estate Ventures. 136

Relevant Accounting Sources. 136

Accounting for an Interest in a Real Estate Venture. 136

Consolidations. 137

Consolidation Examples. 139

Recognition of Noncontrolling Interest 139

Sale of Shares by Subsidiary. 139

Share of Accumulated Other Comprehensive Income. 140

Full Consolidation Example. 141

Equity Method of Accounting. 142

Cost Method. 146

Changing Methods. 146

Transactions with a Real Estate Venture. 146

Contributions. 146

Loans. 147

Purchase of Real Estate from a Venture. 147

Sale of an Investment in a Real Estate Venture. 148

Real Estate Syndication. 148

Syndication Activities. 148

Syndicator Risks and Rewards. 148

Income Recognition by Syndicators. 149

Acquisition, Development, and Construction Arrangements. 150

Participating Mortgage Loans. 151

Real Estate Investment Trusts. 153

Presentation and Disclosure Topics. 153

Chapter 11 - Housing Associations. 156

Common Interest Realty Associations. 156

Issues Specific to Cooperative Housing Associations. 157

Presentation and Disclosure Topics. 157

Common Interest Realty Association Presentation Requirements. 157

Common Interest Realty Association Disclosures. 158

Cooperative Housing Association Presentation Requirements. 160

Cooperative Housing Corporation Disclosures. 160

Answers to Chapter Questions. 162

Glossary. 180

Index. 184

 

Final Examination.....................................................................................................................................................188