Question

Ratliff Development Corporation purchases a tract of land in 2018 at a cost of $120,000 and subdivides the land into 30 building lots. The cost of subdividing is $6,000. In 2018, Ratliff installs roads and utilities at a cost of $36,000 and pays property taxes totaling $2,000 in 2018 and 2019. Interest paid on the loan used to purchase the land is $10,000 in 2018 and $6,000 in 2019. In 2019, Ratliff sells 10 lots for a total of $350,000. What is the corporation’s gain or loss on the sale of the lots?

Answer 1

Answer:

$ 290,000

Explanation:

$ 120,000 Land cost

Expenses  

$   6,000 Subdividing

$ 36,000 Roads and Utilities

$  2,000 Taxes

$ 44,000 Total

Interest  

$ 10,000 2018

$ 6,000 2019

$ 16.000 Total

Cost of Each Lot  

$ 120,000 Land cost

$  44,000 Total Expenses

$   16,000 Interest  *

$ 180,000 Total Cost

$     6,000      Each   ( $ 180,000 / 30 units ) *

Quantity  sold:  30

$ 6,000 Cost per unit

Sales  

10 x $ 35,000    =   $ 350,000  

 

Income Statement  

Sales $ 350,000

Cost $   (60,000)  ( = $ 6,000 x 10 units ) *

Gain $ 290,000     *

* Includes financing costs