Illinois Real Estate Practice Exam

The property in a real estate sales transaction has a 450-gallon heating oil tank that is one-quarter full. The current cost of oil is $1.25 per gallon. What is the appropriate entry to be made on the closing statement?

1. Credit the seller $140.63

2. Debit the buyer $140.63

3. Debit the seller $140.63

4. Credit the buyer $140.63

The correct answer is: Credit the seller $140.63

In a real estate sales transaction, when dealing with items such as fuel or heating oil that are being transferred from the seller to the buyer, it's important to appropriately allocate costs to ensure the buyer is credited for any valuable items they are receiving. In this scenario, the heating oil tank has 450 gallons of capacity and is one-quarter full, which means there are 112.5 gallons of oil in the tank (450 gallons x 0.25). Since the current cost of oil is $1.25 per gallon, the total value of the oil is calculated as follows: 112.5 gallons x $1.25 per gallon = $140.63. When the property is sold, the buyer is essentially purchasing the oil that remains in the tank. Therefore, the seller should receive a credit for the value of the oil on the closing statement to reflect that the buyer is taking possession of it. Consequently, the appropriate entry on the closing statement is to credit the seller for $140.63, as they are being compensated for the oil left in the tank that the buyer will take over. This reflects a fair transaction, ensuring the seller is acknowledged for the asset they are leaving behind, while the buyer gets the benefit of the oil