The balance of this account was so large that it called for special examination. It was found that all the items were for expenditures covered by agreements, under which they are repayable to the concern. In the case of one item of $11,000, necessary to perfect the title, the vendor being short of funds, the concern had paid it under a separate agreement that it was to be deducted from the purchase price. As it was desired to dispose of the Expense account as quickly as possible, the following journal entries were made:

Kingslake Owner.............................

$11,000.00

To Kingslake Expense.......................

$ 11,000.00

For cost of perfecting title, chargeable to the owner.

Kingslake Gains.............................

$55,163.89

To Kingslake Expense...........................

$55,163.89

To charge Gains account with items of expense which prove to be uncollectible.

It will be seen that the above entry properly disposes of the expense by reducing the profits on this tract. An analysis was then made of the sub-ledger trial balance and it was found that the original amount of outstanding contracts, including 541 lots, was $132,901.50; and that the average profit per lot was $205.66. The unearned "Gain on Sales," therefore, in round figures was as follows: $61,800/$132,900 x 541 x $205.66 = $51,738.11

Therefore, $55,163.89 was earned; and instead of carrying this into Profit and Loss, it was deducted from the expenses which were thereby reduced to $17,206.71, which amount was allowed to stand as a real estate expenditure to be deducted from next year's earned profits.