chapter 19 from contract to completion

Question 1

Which of the following statements regarding home owner grants is FALSE?

1. Where the tax due date falls before the adjustment date, the actual taxes paid will be the figure adjusted.
2. Where the tax due date falls after the adjustment date and either the vendor or purchaser or both are not eligible for a grant, then the gross taxes should be adjusted.
3. Where the tax due date falls before the adjustment date and both the vendor and purchaser are eligible for the basic grant, but one or both are not eligible for the seniors grant, the gross taxes should be adjusted.
4. Where the tax due date falls after the adjustment date and both the vendor and purchaser are eligible for the seniors grant, the taxes net of the seniors grant should be adjusted.

Answer 1

Correct Answer: 3

Option 3 is false because where the tax date falls before the adjustment date, the actual taxes paid will be the figure adjusted C in this case it would be taxes net of the basic grant. The other options are all true.

Question 2

Ernie and Bert have entered into a contract of purchase and sale whereby Bert will buy Ernie’s home for $600,000. Because Ernie and Bert are old friends, Ernie has agreed to lend $200,000 to Bert through a take-back mortgage. Bert has already paid a deposit of $50,000 to Ernie directly. The house is currently being rented to a tenant, Grover, for $900 a month, payable in advance on the first of each month. Property taxes on the house were due July 1 in the amount of $3,500, but Ernie has neglected to pay them; as a result, there is now an additional $250 owing as a late payment penalty. These taxes and penalty will be paid by the conveyancer upon completion. Conveyancing fees amount to $2,000. Real estate commission, in the amount of 4%, is payable. Property transfer tax will be payable upon completion. As of the adjustment date, September 15, Grover’s security deposit plus accrued interest amounts to $1,050. It is not a leap year, and Bert is NOT a foreign entity for property transfer tax purposes.

Which of the following represents the cash proceeds as shown on Ernie’s statement of adjustments?

1. $322,005.62
2. $321,755.62
3. $322,805.62
4. $321,746.03

Answer 2

Correct Answer: 2

The cash proceeds of sale on Ernie’s statement of adjustments is determined by subtracting all of Ernie’s debits from all of Ernie’s credits. In this case, the credits are the purchase price and Bert’s share of the property taxes. The debits are the take‑back mortgage, the paid deposit, the rent adjustment, the property taxes for the entire year (plus the late payment penalty), the rental security deposit and the real estate commission.

Question 3

Ernie and Bert have entered into a contract of purchase and sale whereby Bert will buy Ernie’s home for $600,000. Because Ernie and Bert are old friends, Ernie has agreed to lend $200,000 to Bert through a take-back mortgage. Bert has already paid a deposit of $50,000 to Ernie directly. The house is currently being rented to a tenant, Grover, for $900 a month, payable in advance on the first of each month. Property taxes on the house were due July 1 in the amount of $3,500, but Ernie has neglected to pay them; as a result, there is now an additional $250 owing as a late payment penalty. These taxes and penalty will be paid by the conveyancer upon completion. Conveyancing fees amount to $2,000. Real estate commission, in the amount of 4%, is payable. Property transfer tax will be payable upon completion. As of the adjustment date, September 15, Grover’s security deposit plus accrued interest amounts to $1,050. It is not a leap year, and Bert is NOT a foreign entity for property transfer tax purposes.

Which of the following represents the balance due to complete as shown on Bert’s statement of adjustments?

1. $362,555.62
2. $351,505.62
3. $361,496.03
4. $361,505.62

Answer 3

Correct Answer: 4

The balance due to complete on Bert’s statement of adjustments is determined by subtracting all of Bert’s credits from all of Bert’s debits. In this case, the debits are the purchase price, Bert’s share of property taxes, property transfer tax and conveyancing fees. The credits are the take‑back mortgage, the paid deposit, the rent adjustment and the rental security deposit.

Question 4

Ernie and Bert have entered into a contract of purchase and sale whereby Bert will buy Ernie’s home for $600,000. Because Ernie and Bert are old friends, Ernie has agreed to lend $200,000 to Bert through a take-back mortgage. Bert has already paid a deposit of $50,000 to Ernie directly. The house is currently being rented to a tenant, Grover, for $900 a month, payable in advance on the first of each month. Property taxes on the house were due July 1 in the amount of $3,500, but Ernie has neglected to pay them; as a result, there is now an additional $250 owing as a late payment penalty. These taxes and penalty will be paid by the conveyancer upon completion. Conveyancing fees amount to $2,000. Real estate commission, in the amount of 4%, is payable. Property transfer tax will be payable upon completion. As of the adjustment date, September 15, Grover’s security deposit plus accrued interest amounts to $1,050. It is not a leap year, and Bert is NOT a foreign entity for property transfer tax purposes.

Which of the following would appear as DEBITS on Bert’s statement of adjustments?

1. Purchase price, Bert’s share of property taxes, the take-back mortgage, conveyancing fees.
2. Deposit, conveyancing fees, Grover’s security deposit plus interest.
3. Bert’s share of property taxes, property transfer tax, conveyancing fees.
4. Conveyancing fees, purchase price, real estate commission.

Answer 4

Correct Answer: 3

The debits which appear on Bert’s statement of adjustments include his share of property taxes, property transfer tax and conveyancing fees. Option (1) is incorrect because the take‑back mortgage is a credit on Bert’s statement. Option (2) is incorrect because the paid deposit and Grover’s security deposit are credits on Bert’s statement. Option (4) is incorrect because real estate commission is not included on Bert’s statement.

Question 5

Ernie and Bert have entered into a contract of purchase and sale whereby Bert will buy Ernie’s home for $600,000. Because Ernie and Bert are old friends, Ernie has agreed to lend $200,000 to Bert through a take-back mortgage. Bert has already paid a deposit of $50,000 to Ernie directly. The house is currently being rented to a tenant, Grover, for $900 a month, payable in advance on the first of each month. Property taxes on the house were due July 1 in the amount of $3,500, but Ernie has neglected to pay them; as a result, there is now an additional $250 owing as a late payment penalty. These taxes and penalty will be paid by the conveyancer upon completion. Conveyancing fees amount to $2,000. Real estate commission, in the amount of 4%, is payable. Property transfer tax will be payable upon completion. As of the adjustment date, September 15, Grover’s security deposit plus accrued interest amounts to $1,050. It is not a leap year, and Bert is NOT a foreign entity for property transfer tax purposes.

The rental adjustment will appear on Bert’s statement of adjustments as:

1. a debit of $450.00.
2. a credit of $450.00.
3. a credit of $480.00.
4. a debit of $480.00.

Answer 5

Correct Answer: 3

September rent, in the amount of $900.00, has already been paid to Ernie, and must be adjusted to reflect the fact that Bert will take ownership within the month. Ernie must pay to Bert 16 days’ rent (September 15 to 30) as follows: 16/30 H $900 = $480.00, which will appear as a credit on Bert’s statement of adjustments.

Question 6

Ernie and Bert have entered into a contract of purchase and sale whereby Bert will buy Ernie’s home for $600,000. Because Ernie and Bert are old friends, Ernie has agreed to lend $200,000 to Bert through a take-back mortgage. Bert has already paid a deposit of $50,000 to Ernie directly. The house is currently being rented to a tenant, Grover, for $900 a month, payable in advance on the first of each month. Property taxes on the house were due July 1 in the amount of $3,500, but Ernie has neglected to pay them; as a result, there is now an additional $250 owing as a late payment penalty. These taxes and penalty will be paid by the conveyancer upon completion. Conveyancing fees amount to $2,000. Real estate commission, in the amount of 4%, is payable. Property transfer tax will be payable upon completion. As of the adjustment date, September 15, Grover’s security deposit plus accrued interest amounts to $1,050. It is not a leap year, and Bert is NOT a foreign entity for property transfer tax purposes.

Bert’s share of the unpaid house taxes would appear as:

1. a credit of $1,026.03.
2. a debit of $1,035.62.
3. a debit of $1,026.03.
4. a debit of $1,285.62.

Answer 6

Correct Answer: 2

Bert, the buyer of the house, is responsible for the amount of taxes applicable to the house from the adjustment date until the end of the year. That is: 16 + 31 + 30 + 31 = 108 days. Because the house taxes will be paid upon completion by the conveyancer, Bert will be debited for taxes calculated as follows: 108/365 H $3,500 = $1,035.62. Therefore, $1,035.62 appears as a debit on Bert’s statement of adjustments.

Question 7

Dale is a 67 year-old homeowner who recently sold his house to Penelope for $875,000. Upon closing, Dale plans to pay off the outstanding first mortgage of $150,000 with the proceeds from the sale. Penelope will assume the second mortgage of $74,000 and has paid a deposit directly to Dale in the amount of $75,000. Taxes on the house are $2,760.00 and are not yet due and have not yet been paid. As no exemptions apply to this transaction, Penelope will pay the property transfer tax upon closing. Legal fees to effect the transfer and to assume the mortgage are $600.00. The real estate commission is 4% of the first $100,000 and 1% on the remaining amount. The completion, possession and adjustment date is May 15. Assume that Penelope is NOT a foreign entity for property transfer tax purposes. Draft the necessary statements of adjustments to answer the following questions:

Which of the following represents the cash proceeds of sale, as shown on Dale’s statement of adjustments?

1. $586,750.00
2. $563,229.18
3. $565,270.74
4. $563,236.74

Answer 7

Correct Answer: 4

The cash proceeds of sale are determined by subtracting the vendor’s debits from credits. In this case the only credit is the purchase price, while the commission, deposit, mortgage payout, mortgage assumption and tax adjustment are the debits.

Question 8

Dale is a 67 year-old homeowner who recently sold his house to Penelope for $875,000. Upon closing, Dale plans to pay off the outstanding first mortgage of $150,000 with the proceeds from the sale. Penelope will assume the second mortgage of $74,000 and has paid a deposit directly to Dale in the amount of $75,000. Taxes on the house are $2,760.00 and are not yet due and have not yet been paid. As no exemptions apply to this transaction, Penelope will pay the property transfer tax upon closing. Legal fees to effect the transfer and to assume the mortgage are $600.00. The real estate commission is 4% of the first $100,000 and 1% on the remaining amount. The completion, possession and adjustment date is May 15. Assume that Penelope is NOT a foreign entity for property transfer tax purposes. Draft the necessary statements of adjustments to answer the following questions:

The adjustment for property taxes appears on Penelope’s statement of adjustments as:

1. a credit of $1,013.26.
2. a debit of $1,028.39.
3. a debit of $1,020.82.
4. a credit of $1,028.39.

Answer 8

Correct Answer: 1

Where taxes are not yet due and have not been paid, a purchaser must be credited with the seller’s share of the taxes for the year. Dale had the house for 134 days: $2,760 H (134/365) = $1,013.26. This amount will show as a credit.

Question 9

Dale is a 67 year-old homeowner who recently sold his house to Penelope for $875,000. Upon closing, Dale plans to pay off the outstanding first mortgage of $150,000 with the proceeds from the sale. Penelope will assume the second mortgage of $74,000 and has paid a deposit directly to Dale in the amount of $75,000. Taxes on the house are $2,760.00 and are not yet due and have not yet been paid. As no exemptions apply to this transaction, Penelope will pay the property transfer tax upon closing. Legal fees to effect the transfer and to assume the mortgage are $600.00. The real estate commission is 4% of the first $100,000 and 1% on the remaining amount. The completion, possession and adjustment date is May 15. Assume that Penelope is NOT a foreign entity for property transfer tax purposes. Draft the necessary statements of adjustments to answer the following questions:

The real estate commission appears as:

1. a debit of $11,750 on Dale’s statement.
2. a debit of $11,750 on Penelope’s statement.
3. a debit of $12,750 on Dale’s statement.
4. a credit of $35,000 on Dale’s statement.

Answer 9

Correct Answer: 1

Real Estate Commission is paid by the vendor and is therefore a debit on the vendor’s statement.

Question 10

Dale is a 67 year-old homeowner who recently sold his house to Penelope for $875,000. Upon closing, Dale plans to pay off the outstanding first mortgage of $150,000 with the proceeds from the sale. Penelope will assume the second mortgage of $74,000 and has paid a deposit directly to Dale in the amount of $75,000. Taxes on the house are $2,760.00 and are not yet due and have not yet been paid. As no exemptions apply to this transaction, Penelope will pay the property transfer tax upon closing. Legal fees to effect the transfer and to assume the mortgage are $600.00. The real estate commission is 4% of the first $100,000 and 1% on the remaining amount. The completion, possession and adjustment date is May 15. Assume that Penelope is NOT a foreign entity for property transfer tax purposes. Draft the necessary statements of adjustments to answer the following questions:

Which of the following represents the balance due to complete as shown on Penelope’s statement of adjustments?

1. $667,078.18
2. $741,079.18
3. $741,086.74
4. $745,080.18

Answer 10

Correct Answer: 3

The balance due to complete is determined by subtracting the purchaser’s credits from their total debits. Penelope’s debits include the sale price, conveyancing fees, and property transfer tax. Her credits include the paid deposit, assumed mortgage, and vendor’s share of the taxes.

Question 11

Peggy is purchasing Victor’s home for $675,000. Victor has agreed to finance $100,000 of the purchase price, secured by a vendor take-back mortgage. Peggy is also assuming Victor’s existing mortgage in the amount of $200,000. Peggy has given a $40,000 deposit to the selling licensee. Real estate commission is payable on the sale at 6% on the first $100,000, and 2% on the remainder of the purchase price. Conveyancing fees are $2,000. Property taxes have been paid in the amount of $1,700. The adjustment and completion date is June 1. As no exemptions apply, property transfer tax is payable upon completion. Assume it is NOT a leap year and Peggy is NOT a foreign entity for property transfer tax purposes. Draft a statement of adjustments for Peggy and for Victor to answer the following questions.

The balance due to complete is:

1. $389,496.71
2. $349,496.71
3. $337,996.71
4. $358,496.71

Answer 11

Correct Answer: 2

The balance due to complete on Peggy’s statement of adjustments is determined by subtracting all of Peggy’s credits from all of Peggy’s debits. In this case, the debits are the purchase price, Peggy’s share of property taxes, property transfer tax and conveyancing fees. The credits are the take‑back mortgage, the mortgage assumption and the paid deposit.

Question 12

Peggy is purchasing Victor’s home for $675,000. Victor has agreed to finance $100,000 of the purchase price, secured by a vendor take-back mortgage. Peggy is also assuming Victor’s existing mortgage in the amount of $200,000. Peggy has given a $40,000 deposit to the selling licensee. Real estate commission is payable on the sale at 6% on the first $100,000, and 2% on the remainder of the purchase price. Conveyancing fees are $2,000. Property taxes have been paid in the amount of $1,700. The adjustment and completion date is June 1. As no exemptions apply, property transfer tax is payable upon completion. Assume it is NOT a leap year and Peggy is NOT a foreign entity for property transfer tax purposes. Draft a statement of adjustments for Peggy and for Victor to answer the following questions.

The cash proceeds of sale total:

1. $358,492.05
2. $375,996.71
3. $318,496.71
4. $358,496.71

Answer 12

Correct Answer: 4

The cash proceeds of sale on Victor’s statement of adjustments is determined by subtracting all of Victor’s debits from all of Victor’s credits. In this case, the credits are the purchase price and Peggy’s share of the property taxes. The debits are the take‑back mortgage, the mortgage assumption and the real estate commission.

Question 13

Peggy is purchasing Victor’s home for $675,000. Victor has agreed to finance $100,000 of the purchase price, secured by a vendor take-back mortgage. Peggy is also assuming Victor’s existing mortgage in the amount of $200,000. Peggy has given a $40,000 deposit to the selling licensee. Real estate commission is payable on the sale at 6% on the first $100,000, and 2% on the remainder of the purchase price. Conveyancing fees are $2,000. Property taxes have been paid in the amount of $1,700. The adjustment and completion date is June 1. As no exemptions apply, property transfer tax is payable upon completion. Assume it is NOT a leap year and Peggy is NOT a foreign entity for property transfer tax purposes. Draft a statement of adjustments for Peggy and for Victor to answer the following questions.

The deposit paid by Peggy represents:

1. a credit to the buyer, and a debit to the seller.
2. a debit to the buyer, and a credit to the seller.
3. a credit to the buyer, and does not appear on the seller’s statement.
4. a credit to the seller, and does not appear on the buyer’s statement.

Answer 13

Correct Answer: 3

Because a deposit represents prepayment of the purchase price, it will appear as a credit on her statement of adjustments as it reduces the amount of cash she will need to provide to complete the transaction. Since the deposit was paid to the selling licensee and not to Victor directly, it will not appear on his statement of adjustments, as it will not affect the cash proceeds of sale.

Question 14

Peggy is purchasing Victor’s home for $675,000. Victor has agreed to finance $100,000 of the purchase price, secured by a vendor take-back mortgage. Peggy is also assuming Victor’s existing mortgage in the amount of $200,000. Peggy has given a $40,000 deposit to the selling licensee. Real estate commission is payable on the sale at 6% on the first $100,000, and 2% on the remainder of the purchase price. Conveyancing fees are $2,000. Property taxes have been paid in the amount of $1,700. The adjustment and completion date is June 1. As no exemptions apply, property transfer tax is payable upon completion. Assume it is NOT a leap year and Peggy is NOT a foreign entity for property transfer tax purposes. Draft a statement of adjustments for Peggy and for Victor to answer the following questions.

Property taxes are treated on the statements as:

1. a debit of $996.71 to Victor.
2. a debit of $996.71 to Peggy.
3. a credit of $992.05 to Victor.
4. a credit of $996.71 to Peggy.

Answer 14

Correct Answer: 2

Peggy, the buyer of the house, is responsible for the amount of taxes applicable to the house from the adjustment date until the end of the year. That is: 30 + 31 + 31 + 30 + 31 + 30 + 31 = 214 days. Peggy will be debited for taxes calculated as follows: 214/365 H $1,700 = $996.71. Therefore, $996.71 appears as a debit on Peggy’s statement of adjustments (and as a credit on Victor’s statement of adjustments).

Question 15

Peggy is purchasing Victor’s home for $675,000. Victor has agreed to finance $100,000 of the purchase price, secured by a vendor take-back mortgage. Peggy is also assuming Victor’s existing mortgage in the amount of $200,000. Peggy has given a $40,000 deposit to the selling licensee. Real estate commission is payable on the sale at 6% on the first $100,000, and 2% on the remainder of the purchase price. Conveyancing fees are $2,000. Property taxes have been paid in the amount of $1,700. The adjustment and completion date is June 1. As no exemptions apply, property transfer tax is payable upon completion. Assume it is NOT a leap year and Peggy is NOT a foreign entity for property transfer tax purposes. Draft a statement of adjustments for Peggy and for Victor to answer the following questions.

The real estate commission:

1. is for $13,500 and appears on the seller’s debit column.
2. is for $40,500 and appears on the seller’s credit column.
3. is for $17,500 and appears on the buyer’s debit column.
4. is for $17,500 and appears on the seller’s debit column.

Answer 15

Correct Answer: 4

Real estate commission is payable entirely by Victor, the seller. Because it will decrease the amount of cash realized by the seller as a result of the sale, it will represent a debit on the seller’s statement. The amount will be 6% on the first $100,000 ($6,000) plus 2% on the remaining $575,000 ($11,500), for a total real estate commission of $17,500.

Question 16

Sale Price

$600,000

Assumption of 1st mortgage

$260,000

Mortgage-back to vendor

$100,000

Commission

$20,000

Fees for assumption of 1st mortgage

$350

Conveyancing fees

$1,200

Purchaser’s share of taxes already paid

$210

Sailboat taken in trade

$15,000

Deposit paid directly to vendor

$75,000

Total taxes for the year

$2,555

Property transfer tax

$10,000

Balance due to complete

?

What is the balance due to complete?

1. $161,410
2. $160,560
3. $161,760
4. $161,550

Answer 16

Correct Answer: 3

The balance due to complete is the difference between the purchaser’s total debits (purchase price, assumption fees, property transfer tax, conveyancing fees and purchaser’s share of taxes = $611,760) and the purchaser’s total credits (assumed mortgage, vendor take‑back mortgage, sailboat trade and paid deposit = $450,000) = $161,760.

Question 17

Sale Price

$600,000

Assumption of 1st mortgage

$260,000

Mortgage-back to vendor

$100,000

Commission

$20,000

Fees for assumption of 1st mortgage

$350

Conveyancing fees

$1,200

Purchaser’s share of taxes already paid

$210

Sailboat taken in trade

$15,000

Deposit paid directly to vendor

$75,000

Total taxes for the year

$2,555

Property transfer tax

$10,000

Balance due to complete

?

What is the adjustment date?

1. January 31
2. January 30
3. December 1
4. December 2

Answer 17

Correct Answer: 4

The adjustment date may be worked out from 2 pieces of information given: the total taxes for the year, and the purchaser’s share of taxes. By dividing 365 (the days in the year) into $2,555, (the annual taxes) one derives the per diem tax rate of $7. By dividing the per diem rate of $7 into the purchaser’s share of $210, one derives the number of days for which the purchaser is responsible: 30 days. This means that the adjustment date must be December 2 because December 2 to December 31 = 30 days.

Question 18

Sale Price

$600,000

Assumption of 1st mortgage

$260,000

Mortgage-back to vendor

$100,000

Commission

$20,000

Fees for assumption of 1st mortgage

$350

Conveyancing fees

$1,200

Purchaser’s share of taxes already paid

$210

Sailboat taken in trade

$15,000

Deposit paid directly to vendor

$75,000

Total taxes for the year

$2,555

Property transfer tax

$10,000

Balance due to complete

?

What is the total of the CREDITS on the purchaser’s statement exclusive of the balance due to complete?

1. $435,000
2. $450,000
3. $350,000
4. $375,000

Answer 18

Correct Answer: 2

The credits are the assumption of the first mortgage; the vendor take‑back mortgage; the sailboat trade and the paid deposit; totalling $450,000.

Question 19

Sale Price

$600,000

Assumption of 1st mortgage

$260,000

Mortgage-back to vendor

$100,000

Commission

$20,000

Fees for assumption of 1st mortgage

$350

Conveyancing fees

$1,200

Purchaser’s share of taxes already paid

$210

Sailboat taken in trade

$15,000

Deposit paid directly to vendor

$75,000

Total taxes for the year

$2,555

Property transfer tax

$10,000

Balance due to complete

?

What is the total of the DEBITS on the purchaser’s statement?

1. $611,760
2. $601,760
3. $610,210
4. $611,410

Answer 19

Correct Answer: 1

The debits are: the purchase price; the assumption fees; the tax adjustment; the property transfer tax; and the conveyancing fees.

Question 20

Which of the following would appear as a DEBIT on the purchaser’s statement of adjustments?

1. Real estate commission
2. Legal fees for discharging an existing mortgage
3. Deposit paid directly to vendor by purchaser
4. Legal fees for preparing the transfer documents

Answer 20

Correct Answer: 4

Real estate commission does not appear on the purchaser’s statement of adjustments. It is a debit on the vendor’s statement of adjustments. Legal fees for discharging an existing mortgage do not appear on the purchaser’s statement of adjustments but as a debit on the vendor’s statement of adjustments. The deposit paid directly to the vendor is a credit on the purchaser’s statement of adjustments. It is the purchaser’s responsibility to pay for the transfer of the property and therefore the cost of preparing the transfer documents is a debit to the purchaser.