Blue Realty Corporation purchased a tract of unimproved land

Blue 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 $30,000. 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

Operating expenses for the year allocated to this project total $17,000. Lots unsold at the year-end were as follows.

At the end of the fiscal year Blue Realty Corporation instructs you to arrive at the net income realized on this operation to date.

Solution

Income realized on this operation is $51,600 as calculated below :

Sale : (3*$3,600) + (10*$4,800) + (13 *$2,880) = $96,240

Closing stock(unsold) : (5*$3,600) + (7*$4,800) + (2 *$2,880) = $57,360

Cost of Land : $55,000

Additional cost to building : $30,000

Operating Expenses : $17,000

Operating Income : (Sale Value + Closing Stock) - (Cost of Land - Additional cost to building - Operating Expenses)

Operating Income : ($96,240 + $57,360) - ($55,000 - $30,000 - $17,000)

Operating Income : $51,600