Question

Valuing Inventory and Recording Entries Using Relative Sales Value Method Arizona Developers purchased for cash and subdivided a tract of land that cost $837,000. The subdivisions were divided on the following basis.

10% used for streets, alleys, and parks

50% divided into 100 lots selling at $4,000 each

30% divided into 200 lots selling at $3,000 each

10% divided into 100 lots selling at $2,000 each

a. Prepare the entry for the purchase of the lots. Use the relative sales value method to allocate the total cost of $837,000 to the three categories of lots. Assume a perpetual inventory system.

Account Name	Dr.	Cr.
Inventory—Lot Category 1	279,000	0
Inventory—Lot Category 2	418,500	0
Inventory—Lot Category 3	139,500	0
Cash		837,000

b. During the final month of the year, the paving was completed (included in the $837,000 cost) and several sales occurred. Inventory remaining at the first year-end was: 18 of the $4,000 lots; 20 of the $3,000 lots; and 6 of the $2,000 lots.

1) Compute the valuation of inventory at the first year-end. Inventory

Lot Category 1	$ ?
Lot Category 2	$ ?
Lot Category 3	$ ?
Total	$ ?

2) Prepare the entry for sales and cost of goods sold for each category of lots 1, 2 and 3 separately. Assume cash sales.

Account Name	Dr.	Cr.
Cash	?	0
Cost of Goods Sold	?	0
Sales	0	?
Inventory	0	?
to record the sale of lots in category 1
Cash	?	0
Cost of Goods Sold	?	0
Sales	0	?
Inventory	0	?
to record the sale of lots in category 2
Cash	?	0
Cost of Goods Sold	?	0
Sales	0	?
Inventory	0	?
to record the sale of lots in category 3

Answer 1