(84)

Contracts,

Dr.

$1,158.98

(85)

Gains,

Cr.

1,576.00

(86)

Purchase,

Dr.

3,402.00

(87)

Expense,

Dr.

85.00

This group of accounts relates to subdivision property owned by the concern, the value of the unsold part being carried in the above Purchase account. At the time of making this purchase, the concern agreed that one T. Rinders (who participated in making the purchase) should have one-third of the profits as they were realized. His part of the account is treated more fully later under accounts Nos. 91, 92. The analysis of the sub-ledger shows that the open contracts, on which the balances are $1,158.98, cover 14 lots, which were originally sold for $2,195 and which cost the concern $63 each. From these figures, it is evident that the average selling price was about $157, and the net profit $94 per lot.

With these facts, the unearned profit is as follows: $1,159 / $ 2,195 X 14 X $94 = $694.87

If we deduct this amount from the balance of the Gains account ($1,576), it is found that the earned profits are $881.13, of which two-thirds ($587.42) is credited to Profit and Loss; one-third ($293.71) is credited to account No. 91 (Rinders, T.). $694.87 remains in the Reserve Profits. The Expense account is carried to the debit of Profit and Loss. The Purchase account is verified by ascertaining that there remained unsold 54 lots, which, at $63 each, amount to $3,402.