Belgrade Lakes Properties is developing a golf course subdivision that includes 225 home lots; 100 lots are golf course lots and will sell for $95,000 each; 125 are street frontage lots and will sell for $65,000. The developer acquired the land for $1,800,000 and spent another $1,400,000 on street and utilities improvement. Compute the amount of joint cost to be allocated to the golf course lots using value basis.
A) $1,724,800.
B) $1,777,920.
C) $2,018,920.
D) $1,422,080.
E) $1,475,200.

Question

Quizplus · Accepted Answer

The value basis allocates joint costs based on the relative fair market values of the individual products. In this case, the golf course lots are worth $95,000 each and the street frontage lots are worth $65,000 each. The total value of the golf course lots is $9,500,000 (100 x $95,000) and the total value of the street frontage lots is $8,125,000 (125 x $65,000). The total value of all the lots is $17,625,000 ($9,500,000 + $8,125,000). The joint cost of $3,200,000 ($1,800,000 + $1,400,000) is allocated to the golf course lots as follows:$3,200,000 x $9,500,000 / $17,625,000 = $1,724,800

Belgrade Lakes Properties Is Developing a Golf Course Subdivision That