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

$ 290,000

Step-by-step 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