Pleasant Hills Properties is developing a golf course subdivision that includes 250 home lots;100 lots are golf course lots and will sell for $95,000 each;150 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 street frontage lots using value basis.
A)$1,920,000.
B)$720,000.
C)$1,620,800.
D)$1,579,200.
E)$1,080,000.

Question

Quizplus · Accepted Answer

The total cost incurred by the developer is:
Cost of land acquisition + Cost of improvements = $1,800,000 + $1,400,000 = $3,200,000
The value of the golf course lots is:
$95,000/lot x 100 lots = $9,500,000
The total value of the subdivision is:
Value of golf course lots + Value of street frontage lots = $9,500,000 + ($65,000/lot x 150 lots) = $19,250,000
The proportion of the value of street frontage lots to the total value of the subdivision is:
($65,000/lot x 150 lots) / $19,250,000 = 0.3948 or 39.48%
Therefore, the joint cost to be allocated to the street frontage lots using value basis is:
0.3948 x $3,200,000 = $1,620,800.

Pleasant Hills Properties Is Developing a Golf Course Subdivision That