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    susand1964's Avatar
    susand1964 Posts: 1, Reputation: 1
    New Member
     
    #1

    Jan 6, 2010, 04:49 PM
    Journal entries for sale of property
    I need to record a journal entry in the following scenario:

    1. Sale of property which we have an existing loan on.
    2. We will carry the loan for the property to the new owner for one year.
    3. We will continue making payments on our loan.

    The legal paperwork is called a "Wrap-Around Note".

    BTW, I use Quickbooks but am fairly used to making journal entries for purchase/sale of property when we're only on one side of it.

    Any help would be greatly appreciated.
    ArcSine's Avatar
    ArcSine Posts: 969, Reputation: 106
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    #2

    Jan 7, 2010, 06:16 AM
    I'd encourage you to stay tuned to this channel for a second opinion, as I'm not 100% sure here, but I don't think the fact that it was structured as a wrap alters the usual accounting procedure.

    To book the sale you'd just debit the appropriate combo of Cash and Note Receivable--according to the consideration given by Buyer--and credit the property off the books; i.e. the customary accounting for any ordinary sale of property, along with any gain or loss recognition. Your obligation to the existing loan stays put on your bal sheet.

    Moving forward, every receipt on Buyer's note is recorded with the usual entries to Cash, Interest Income, and Note Receivable. Similarly, your payments to the existing note are recorded just as you've always done.

    I don't think that any netting of the two notes is appropriate here, as legally there are two separate obligations in place--Buyer to you, and you to existing loan--and my suggestion above tracks with that theory by keeping both notes on your bal sheet 'as is'.
    morgaine300's Avatar
    morgaine300 Posts: 6,561, Reputation: 276
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    #3

    Jan 8, 2010, 03:06 AM

    I don't think that any netting of the two notes is appropriate here, as legally there are two separate obligations in place--Buyer to you, and you to existing loan
    Absolutely.

    I don't really know any more than ArcSine's - I've never heard of a wrap-around note. Just seems like the sale is a sale and nothing to do with your note. There may be some issues with you not having the collateral anymore or something like that, but you'd know that better than us.

    But knowing you aren't netting any notes is about my only real input here. :-)
    ArcSine's Avatar
    ArcSine Posts: 969, Reputation: 106
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    #4

    Jan 8, 2010, 05:53 AM
    Greetings, Morgaine... glad to see you back in the house! (The accounting threads are kind of Wild West-ish when the sheriff's out of town) :)

    Just to staple a little addendum onto OP's question, I found a reference...
    Accounting for Real Estate ... - Google Books

    ... which concurs with our 'non-netting' thinking. See the author's second paragraph under 3.7.3.

    Cheers, all!
    morgaine300's Avatar
    morgaine300 Posts: 6,561, Reputation: 276
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    #5

    Jan 9, 2010, 12:06 AM

    Oh, now I'd make a terrible sheriff, so you're now the deputy.

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