Record Keeping and Trust Accounts

Jess signed a listing agreement with the Campbells to sell their seven-bedroom, 4,500-squarefoot home. They received multiple offers, which was fortunate because the first two offers the Campbells accepted fell through. The third time was the charm, and they completed the transaction. Which of these records is Jess NOT required to keep, according to CREC rules? A. A copy of the deed granting title to the buyer B. Disclosures Jess provided to the Campbells and to prospective buyers C. The listing agreement Jess signed with the Campbells D. The offers to purchase that the Campbells accepted

A. A copy of the deed granting title to the buyer

In Colorado, beneficiary ledgers are required for all escrow accounts. Which of the following is a true statement? A. A separate ledger is required for each beneficiary. B. CREC beneficiary ledger forms must be used. C. New ledgers must be created at the beginning of each calendar year. D. The "master" beneficiary ledger contains all of the information for all beneficiaries.

A. A separate ledger is required for each beneficiary.

When may a beneficiary ledger be closed? A. After all of the funds have been disbursed B. After three years C. Right after closing D. The day of closing

A. After all of the funds have been disbursed

Tracey has just closed a beneficiary ledger. Which of the following must be true? A. All escrow fund have been distributed or the account has been closed. B. A new ledger has been created for the beneficiary. C. The deal fell through. D. The ledger contained errors.

A. All escrow fund have been distributed or the account has been closed.

Jeffery has found an error in his brokerage's escrow account. The form shows that the total ledger balance is significantly more than the account balance. What required Colorado record is he most likely looking at? A. Bank reconciliation worksheet B. Beneficiary ledger C. Broker's ledger D. Escrow account journal

A. Bank reconciliation worksheet

Who, or which entity, owns escrow account funds in Colorado? A. Beneficiaries B. Brokers C. Brokers and beneficiaries D. The state of Colorado

A. Beneficiaries

Accurate sales transaction records help improve the accuracy of appraisals and CMAs, and are examined during ______. A. Commission audits B. Tax season C. The loan approval process D. Title searches

A. Commission audits

The dollar value of money due from the buyer at closing would appear in which column of the escrow account journal? A. Deposits B. Description C. Journal Balance D. Payments

A. Deposits

In Colorado, transaction files must be kept for _____ after the transaction date. A. Four years B. One year C. Six months D. Two years

A. Four years

Which of the following statements about a beneficiary ledger in Colorado is true? A. It doesn't include account fees. B. It includes account fees. C. It isn't specific to a transaction. D. It shouldn't have a zero balance.

A. It doesn't include account fees.

Wanda, a Colorado licensee, is maintaining the broker's ledger for the brokerage escrow account. What should she do with an escrow account journal entry that shows $15,000 deposited from a title company as payment of the brokerage commission in a transaction? A. Pay out the funds promptly and record the withdrawal in the beneficiary ledger and brokerage business account. B. Pay out the funds promptly and record the withdrawal in the broker's ledger and beneficiary ledger. C. Record the transfer from the title company in the broker's ledger and leave the funds in the escrow account. D. Transfer the funds to the brokerage business account without any ledger entries required.

A. Pay out the funds promptly and record the withdrawal in the beneficiary ledger and brokerage business account.

When a transaction in Colorado has successfully closed and the commission has been distributed, what should the beneficiary ledger show? A. An ending balance equal to the escrow account B. A zero balance C. The accrued interest D. The loan amount the buyer owes

B. A zero balance

Ron is depositing $200 in the Colorado brokerage's escrow account to cover the cost of checking supplies. On which required accounting record would he record this information? A. Beneficiary ledger B. Broker's ledger C. Miscellaneous ledger D. Monthly expense report

B. Broker's ledger

The Colorado Real Estate Commission requires that brokers keep accounting records for all brokerage trust accounts. Which type of accounting record tracks administrative expenses for those trust accounts? A. Beneficiary ledger B. Broker's ledger C. Escrow account journal D. Reconciliation worksheet

B. Broker's ledger

Who's responsible for opening escrow in a Colorado residential transaction where the buyer obtains a new conventional loan and a title company handles the closing? A. Buyer's attorney B. Buyer's broker C. Lender D. Seller's broker

B. Buyer's broker

At closing, in a residential transaction in Colorado where the buyer obtains a new conventional loan and a title company handles the closing, the _____________ disburses the escrow funds in accordance with the contract. A. Buyer's broker B. Closing company C. Lender D. Seller's broker

B. Closing company

Which of the following statements about the entries recorded in the broker's ledger for the escrow account is true? A. All payments from and deposits to the escrow account appear in the broker's ledger. B. Commission payments from a transaction will not appear in the broker's ledger. C. The broker's ledger is only used when the broker is acting as the closing agent in a transaction. D. The broker's ledger is used to record the commission payments from each transaction.

B. Commission payments from a transaction will not appear in the broker's ledger.

Nick, an independent broker, is being audited by the Colorado Real Estate Commission. Which of these would NOT be part of the transaction files he provides to CREC? A. Copies of settlement statements signed by his clients B. Copies of transaction records that were damaged when the storage room flooded last year, so they're only partially legible C. Original or copied forms completed during his transactions that weren't contracts, such as disclosures or reports D. Printed copies of electronically signed documents, such as listing agreements

B. Copies of transaction records that were damaged when the storage room flooded last year, so they're only partially legible

What type of transactions allow brokers to establish trust accounts outside the state of Colorado? A. Cash deposits B. Credit card deposits C. Earnest money deposits D. Security deposits

B. Credit card deposits

Dennis receives an offer for a property he's listed for the Bennetts. The written offer is accompanied by an earnest money check. Which of these actions will Dennis take if the Bennetts accept the offer? A. Complete an Earnest Money Promissory Note form and submit it to the buyers through their agent. B. Deliver or deposit the check, according to contract instructions, within three business days. C. Give the earnest money check to the Bennetts and request an Earnest Money Receipt form in return. D. Hold the earnest money check until he receives verification of good funds from the buyer's bank.

B. Deliver or deposit the check, according to contract instructions, within three business days.

Good funds must be immediately available following upon ______________. A. Acceptance of an offer B. Deposit C. Disbursement D. Receipt

B. Deposit

Each of these brokers has received an earnest money check to hold for the parties to a transaction. Which one is recording the deposit properly in the brokerage trust fund accounting records? A. David intends to deposit the check tomorrow but records the deposit today so he won't forget. He enters the record in the firm's escrow account journal and the beneficiary's ledger. B. Eric records the earnest money deposit in the firm's escrow account journal and the beneficiary's ledger, including all relevant data and the account balance. C. Jamie enters the date of deposit, the names of the beneficiaries, the purpose, and the amount, and updates the balance in the escrow account journal. D. She then reconciles the account using the bank reconciliation worksheet. Misty records the earnest money deposit in the firm's escrow account journal and the broker's ledger, including all relevant data and the account balance.

B. Eric records the earnest money deposit in the firm's escrow account journal and the beneficiary's ledger, including all relevant data and the account balance.

If a brokerage uses a manual accounting system, where are trust account records typically kept? A. At a secure offsite storage facility B. Filed inside three-ring binders in the broker's office C. In a lock box in the broker's office D. Locked in a safety deposit box at the bank

B. Filed inside three-ring binders in the broker's office

Ruby is a broker who's managing several single-family homes as vacation rental properties for her client. How long should Ruby keep the records, such as occupancy agreements, of shortterm guests in these vacation rental properties? A. For as long as the management agreement she has with the owner specifies B. Four years, regardless of the length of the tenant's stay C. She need not keep any records related to short-term tenants (those who lease for one month or less) D. Three years, regardless of the length of the tenant's stay

B. Four years, regardless of the length of the tenant's stay

What's the next step in the process when disputes arise over earnest money and the parties can't agree on who receives it? A. Litigation is required. B. Mediation is required. C. The earnest money escheats to the state. D. The earnest money reverts back to the buyer.

B. Mediation is required.

How often must Colorado escrow accounts must be reconciled? A. Every quarter B. Once per month C. Once per year D. When they are closed

B. Once per month

Sherman and his brother-in-law have a partnership where they own and lease office condominiums. Sherman manages the properties and earns a commission from doing so. When tenants pay security deposits to lease these properties, what's Sherman's responsibility according to CREC rules? A. Because Sherman is an owner, CREC has no jurisdiction over what he does with his security deposits. B. Sherman must deposit those trust funds in an account that's separate from any other trust accounts he holds. C. Sherman must provide the tenant with the Licensee Interest in Trust Funds Disclosure. D. Sherman's business partner must be identified as a cosigner for the account Sherman uses for security deposits.

B. Sherman must deposit those trust funds in an account that's separate from any other trust accounts he holds.

Which of the following statements about a beneficiary ledger beginning balance is true? A. The beginning balance carries forward from the escrow account. B. The beginning balance should be zero. C. The beginning balance should include account fees. D. The beginning balance should include interest.

B. The beginning balance should be zero.

It's the end of the month, and Evelyn, a Colorado broker, is monitoring the escrow accounting entries of her staff. She's surprised to see that someone neglected to record bank service charges for last month. These should have been recorded in the escrow account journal and the ________________. A. Bank reconciliation ledger B. Beneficiary ledgers C. Broker's ledger D. Miscellaneous ledger

C. Broker's ledger

Deposits to a broker's escrow accounts are likely to be related to which of the following? A. Appraisal fees B. Buyer credit reports C. Funds from the lender D. Hazard insurance premiums

C. Funds from the lender

Funds that are immediately available when they're deposited are known as ____________. A. Acceptable funds B. Escrow funds C. Good funds D. Trust funds

C. Good funds

Which of the following would appear as a deposit in a Colorado broker's ledger? A. Advance to cover a repair B. Cost of checks C. Interest on the account D. Service fees for the account

C. Interest on the account

Which of these activities does independent broker Lulu perform on a monthly basis to maintain her active brokerage trust accounts? A. Deposit all earnest money checks received during the calendar month. B. Print a hard copy of the trust account journal, beneficiary ledgers, and broker's ledger since she uses an electronic recordkeeping system. C. Reconcile her records for active trust accounts with the bank's statement. D. Update the balances in the trust account journal, the beneficiary ledgers, and the broker's ledger.

C. Reconcile her records for active trust accounts with the bank's statement.

In addition to being a good business practice, escrow account bank statement reconciliation is also ________ in Colorado. A. Difficult B. Expensive C. Required D. Unimportant

C. Required

Dean ensures that more than one person in his Colorado brokerage is responsible for maintaining escrow accounting records and he uses an internal audit team to help him review all records on a monthly basis. He is practicing ________________________. A. Creating leverage B. Ensuring good funds C. Separation of duties D. Staying within his scope of expertise

C. Separation of duties

In Colorado, more than one person must be in charge of completing escrow accounting tasks and verifying that they are done correctly. This is known as what? A. Creating leverage B. Good funds C. Separation of duties D. Staying within a broker's field of expertise

C. Separation of duties

You've just received an earnest money deposit from a new client. What should you do? A. Deposit it in your broker's escrow account. B. Hang on to it while you check your client's credit and financial profile. C. Start a beneficiary ledger. D. Use it to open a checking account for the client.

C. Start a beneficiary ledger.

A broker is reconciling an escrow account bank statement using the reconciliation worksheet. The broker's journal and beneficiary ledger show a check written for $3,000 that isn't reflected on the bank statement. How will the broker handle this to complete the reconciliation? A. Add the amount of the check back to the escrow account journal. B. Add the amount of the check to the bank statement balance. C. Subtract the amount of the check from the bank statement balance. D. Subtract the amount of the check from the beneficiary ledger.

C. Subtract the amount of the check from the bank statement balance.

In Colorado, when will a brokerage create a new beneficiary ledger? A. On the first day of every year B. When all escrow funds have been distributed per the terms of the contract C. When escrow funds are initially received from each client D. Whenever a deposit is made into the escrow account

C. When escrow funds are initially received from each client

You're an associate broker at XYZ Realty. When you receive an earnest money check for one of your listings and deposit it in the brokerage trust account, what's true about those funds? A. CREC is responsible for them. B. The state treasurer is responsible for them. C. Your employing broker is responsible for them. D. You're still responsible for them.

C. Your employing broker is responsible for them.

Bronwyn is explaining to her very naïve first-time buyer clients what will happen to the earnest money check they've just written out. What's the best way for Bronwyn to explain how their earnest money is protected? A. "Once you give that money to me, it becomes trust funds. It belongs to the seller's broker until the transaction closes. At that point, the broker is obliged to give it to the seller, according to the purchase contract." B. "This is part of your down payment on the house, so you give it to me, and then it belongs to the seller. It's held in a bank, which is called a trust account, until the sale closes." C. "This money is considered trust funds because you're trusting other people to take care of it for you. As the beneficiaries, brokers provide the benefit to you, the trustees, of keeping this money for you in a trust account." D. "This money will go into an escrow account, which is where a trustee holds only funds belonging to others, like your earnest money. It's separate from the firm's business accounts to prevent the funds from being mixed, which would be illegal."

D. "This money will go into an escrow account, which is where a trustee holds only funds belonging to others, like your earnest money. It's separate from the firm's business accounts to prevent the funds from being mixed, which would be illegal."

Good record retention is one way to ______ risk. A. Elevate B. Eliminate C. Increase D. Manage

D. Manage

CREC requires that you keep escrow account bank reconciliation worksheets ________. A. Electronically B. For seven years C. Indefinitely D. On paper

D. On paper

The dollar value of money due to the seller at closing would appear in which column of the escrow account journal? A. Deposits B. Description C. Journal Balance D. Payments

D. Payments

Which of these is NOT a trust account recordkeeping requirement that independent broker Lana must adhere to? A. She must keep a hard copy of the monthly worksheet showing the trust accounts are in balance. B. She must reconcile all active trust accounts every month. C. She must use an accounting system that incorporates specific data fields required by CREC. D. She must use the accrual method of accounting for maintaining her trust journals.

D. She must use the accrual method of accounting for maintaining her trust journals.

When brokers keep accurate escrow account records, which of these amounts on the bank reconciliation worksheet for the escrow account will match? A. The beneficiary ledgers' total balance and the bank statement balance B. The broker's ledger balance and the reconciled bank balance C. The escrow account journal balance and the reconciled bank balance D. The escrow account journal balance, the total ledgers' balance, and the reconciled bank balance

D. The escrow account journal balance, the total ledgers' balance, and the reconciled bank balance

Which of the following is a true statement regarding the Colorado broker's ledger? A. CREC forms must be used. B. It must be provided to CREC. C. It's an optional record. D. The owner of the escrow account must maintain it.

D. The owner of the escrow account must maintain it.

When is the escrow account reconciliation considered to be "in balance"? A. The account balance plus the balance of the beneficiary ledgers should equal the broker's ledger. B. The account balance should equal the broker's ledger. C. The reconciled account balance equals the total of all ledgers. D. The reconciled account balance, the total of all ledgers, and the total of the escrow account journal all match.

D. The reconciled account balance, the total of all ledgers, and the total of the escrow account journal all match.

In a residential transaction in Colorado where the buyer obtains a new conventional loan and a title company handles the closing, what does the lender after the loan is approved and prior to closing? A. Places the loan amount in an escrow account operated by the lender B. Transfers the loan amount into the buyer's personal bank account C. Transfers the loan amount to the buyer's broker D. Transfers the loan amount to the closing company

D. Transfers the loan amount to the closing company

Which of the following would be an example of conversion when handling client funds? A. Depositing client funds into the general business account B. Neglecting to keep records on a client escrow account C. Taking a cashier's check as the earnest money deposit when the contract says "personal check" D. Using funds from a client escrow account to buy doughnuts for the office

D. Using funds from a client escrow account to buy doughnuts for the office