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Chapter 9: 9E (page 478)

Phil Collins Realty Corporation purchased a tract of unimproved land for \(55,000. This land was improved and subdivided into building lots at an additional cost of \)34,460. These building lots were all of the same size but owing to differences in location were offered for sale at different prices as follows. Group No. of Lots Price per Lot 1 9 \(3,000 2 15 4,000 3 17 2,400 Operating expenses for the year allocated to this project total \)18,200. Lots unsold at the year-end were as follows. Group 1 5 lots Group 2 7 lots Group 3 2 lots Instructions At the end of the fiscal year Phil Collins Realty Corporation instructs you to arrive at the net income realized on this operation to date.

Short Answer

Expert verified

The net income at the year-end equals $5,800.

Step by step solution

01

Calculation of total cost of land

Calculation of total cost is as follows:

02

Calculation of cost per lot

Groups

No. of Lots

Sales Price Per Lot

Total Sales Price

Relative Sales Price

Total Cost

Cost Allocated to Lots

Cost Per Lot

Group 1

9

$3,000

$27,000

27000/127800

$89,460

$18,900

$2,100

Group 2

15

4,000

60,000

60000/127800

89,460

42,000

2,800

Group 3

17

2,400

40,800

40800/127800

89,460

28,560

1,680

Total

$127,800

03

Calculation of gross profit

Groups

No. of Lots

Unsold Lots

Sold Lots

Cost per Lot

Cost of Lots Sols

Sales

Gross Profit

Group 1

9

5

4

$2,100

$8,400

$12,000

$3,600

Group 2

15

7

8

2,800

22,400

32,000

9,600

Group 3

17

2

15

1,680

25,200

36,000

10,800

Total

$56,000

$80,000

$24,000

04

Calculation of net income

Net income is calculated as follows:

Netincome=Grossprofit-Operatingexpenses=$24,000-$18,200=$5,800

Thus, net income is $5,800.

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Most popular questions from this chapter

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