Pappas Corp. paid $5,250,000 for 1,500 acres of land. The company plans to sell the trees on the land to a lumber company. After the land is cleared, Webster believes the land will have a value of $600,000.
Required:
(a) Prepare the journal entry for the acquisition of the land and the trees.
(b) What average cost should Pappas assign to an acre of lumber? Are there any conditions that you believe would make an average cost per acre an unacceptable cost method?
(c) Assume that Pappas sells the trees immediately after clearing the land. What journal entry would Pappas make to account for the clearing of 100 acres?
(d) After the land is cleared, Pappas receives an offer of $4,000 per acre for the land. Should Pappas change the historical cost of the land?
(e) Prepare the journal entry if Pappas sells 300 acres of cleared land for $3,300 per acre.