Question

Metlock Inc., a registered broker, enters into a finder’s fee agreement with HOM Homes Ltd. on June 15, 2020. Metlock will find leads in the form of buyers potentially interested in purchasing HOM’s real estate holdings. Along with finding potential buyers, Metlock helps negotiate the selling price and provides advice on contract details. If and when HOM closes a sale, Metlock will be paid within 30 days of the closing date, based on the following formula: 5% of any transaction value up to and including $1 million, plus 4% of any transaction value greater than $1 million and less than and including $2 million, plus 3% of any transaction value greater than $2 million and less than and including $3 million, plus 2% of any transaction value greater than $3 million and less than and including $4 million, plus 1% of any transaction value in excess of $4 million. If Metlock is represented by another broker and this information is not shared with HOM, the fee is reduced by 50%. On September 1, 2020, HOM paid Metlock $51,000 to provide some needed cash flow for seeking out buyers. On October 15, 2020, an offer was made and accepted for a parcel of real estate at a price of $3.50 million. The transaction closed on November 1, 2020, and Metlock was paid the finder’s fee net of $51,000 on November 30, 2020.

Determine the accounting treatment of the above events for Metlock Inc. and prepare any journal entries needed on: (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

a.		June 15, 2020
b.		September 1, 2020
c.		October 15, 2020
d.		November 1, 2020
e.		November 30, 2020

	Date	Account Titles and Explanation	Debit	Credit
a.
b.
c.
d.
e.

List of Accounts

• Accounts Payable
• Accounts Receivable
• Advertising Expense
• Allowance for Doubtful Accounts
• Allowance for Sales Returns and Allowances
• Cash
• Commission Expense
• Commission Revenue
• Compensation Expense
• Consignment Sales
• Construction Expenses
• Contract Asset/Liability
• Cost of Goods Sold
• Estimated Inventory Returns
• Interest Expense
• Interest Income
• Interest Payable
• Interest Receivable
• Inventory
• Inventory on Consignment
• Loss from Long-Term Contracts
• Materials, Cash, Payables
• Miscellaneous Expense
• No Entry
• Notes Receivable
• Office Expense
• Refund Liability
• Rent Revenue
• Returned Inventory
• Revenue from Consignment Sales
• Revenue from Long-Term Contracts
• Sales Discounts
• Sales Discounts Forfeited
• Sales Returns and Allowances
• Sales Revenue
• Service Revenue
• Unearned Rent Revenue
• Unearned Revenue
• Utilities Expense
• Warranty Expense
• Warranty Liability
• Warranty Revenue

Answer 1

Metlock Inc.. a Registered Broker

Agreement date : 15/07/2020

Responsibility of Metlock Inc

• Fiinding potential buyers
• Metlock helps negotiate the selling price
• Provides advice on control details

When HOME Closes a sale

within 30 days of the closing date	In case informations not shared with HOMES
Range of Transactin value	%	%
<= 1 Million	5%	2.50%
>1 million <=2 Million	4%	2.00%
>2 million <=3 million	3%	1.50%
>3 million <=4 million	2%	1.00%
>4 million	1%	0.50%

                                                                               

Transaction date & Details	Journal entries
June 15, 2020 Agreement date	No journal entries required
September 1, 2020 HOM paid Metlock $51,000 to provide some needed cash flow for seeking out buyers Being advance received to meet expenses	Cash / Bank A/c          Dr 51000      To HOMES A/c                        51000
October 15, 2020 This is because no rights to receive generated on 15th Oct	No journal entries required
November 1, 2020 The transaction closed on November 1, 2020 and transaction value was 3.50 million (W.n 1)	Homes A/c                                    DR 0.130 million    To Brokerage or finder fees A/C                  0.130 million
November 30, 2020 Metlock was paid the finder’s fee net of $51,000 on November 30, 2020. Net amount i.e 130000-51000	Cash OR Bank A/             DR 79000       To Homes A/C 79000

W.N 1

Calculation of Finders Fee
1 million	5%	0.05
next 1 million	4%	0.04
next 1 million	3%	0.03
rest .50 million	2%	0.010
		0.130 million