Valuing Inventory and Recording Entries Using Relative Sales Value Method Arizona Developers purchased for cash and subdivided a tract of land that cost $990,000 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 $990,000 to the three categories of lots Assume a perpetual inventory system Account Name Dr Cr InventoryLot Category 1 Answer Answer InventoryLot Category 2 Answer Answer InventoryLot Category 3 Answer Answer AnswerCashAccounts ReceivableInventoryAllowance to Reduce Inventory to Net Realizable ValueAllowance to Reduce Inventory to Market ValueAccounts PayableBonus PayableEstimated Liability on Purchase CommitmentRetained EarningsRetained EarningsPrior Period AdjustmentSalesCost of Goods SoldCompensation ExpenseHolding Loss on InventoryEstimated Loss on Purchase CommitmentN A Answer Answer b During the final month of the year, the paving was completed (included in the $990,000 cost) and several sales occurred Inventory remaining at the first year end was 20 of the $4,000 lots 50 of the $3,000 lots and 10 of the $2,000 lots InventoryLot Category 1 Answer InventoryLot Category 2 Answer InventoryLot Category 3 Answer Total Answer Compute the valuation of inventory at the first year end 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 Answer Answer AnswerCashAccounts ReceivableInventoryAllowance to Reduce Inventory to Net Realizable ValueAllowance to Reduce Inventory to Market ValueAccounts PayableBonus PayableEstimated Liability on Purchase CommitmentRetained EarningsRetained EarningsPrior Period AdjustmentSalesCost of Goods SoldCompensation ExpenseHolding Loss on InventoryEstimated Loss on Purchase CommitmentN A Answer Answer AnswerCashAccounts ReceivableInventoryAllowance to Reduce Inventory to Net Realizable ValueAllowance to Reduce Inventory to Market ValueAccounts PayableBonus PayableEstimated Liability on Purchase CommitmentRetained EarningsRetained EarningsPrior Period AdjustmentSalesCost of Goods SoldCompensation ExpenseHolding Loss on InventoryEstimated Loss on Purchase CommitmentN A Answer Answer Inventory Answer Answer To record sale of lots in category 1 Cash Answer Answer AnswerCashAccounts ReceivableInventoryAllowance to Reduce Inventory to Net Realizable ValueAllowance to Reduce Inventory to Market ValueAccounts PayableBonus PayableEstimated Liability on Purchase CommitmentRetained EarningsRetained EarningsPrior Period AdjustmentSalesCost of Goods SoldCompensation ExpenseHolding Loss on InventoryEstimated Loss on Purchase CommitmentN A Answer Answer AnswerCashAccounts ReceivableInventoryAllowance to Reduce Inventory to Net Realizable ValueAllowance to Reduce Inventory to Market ValueAccounts PayableBonus PayableEstimated Liability on Purchase CommitmentRetained EarningsRetained EarningsPrior Period AdjustmentSalesCost of Goods SoldCompensation ExpenseHolding Loss on InventoryEstimated Loss on Purchase CommitmentN A Answer Answer Inventory Answer Answer To record sale of lots in category 2 Cash Answer Answer AnswerCashAccounts ReceivableInventoryAllowance to Reduce Inventory to Net Realizable ValueAllowance to Reduce Inventory to Market ValueAccounts PayableBonus PayableEstimated Liability on Purchase CommitmentRetained EarningsRetained EarningsPrior Period AdjustmentSalesCost of Goods SoldCompensation ExpenseHolding Loss on InventoryEstimated Loss on Purchase CommitmentN A Answer Answer AnswerCashAccounts ReceivableInventoryAllowance to Reduce Inventory to Net Realizable ValueAllowance to Reduce Inventory to Market ValueAccounts PayableBonus PayableEstimated Liability on Purchase CommitmentRetained EarningsRetained EarningsPrior Period AdjustmentSalesCost of Goods SoldCompensation ExpenseHolding Loss on InventoryEstimated Loss on Purchase CommitmentN A Answer Answer Inventory Answer Answer To record sale of lots in category 3

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Valuing Inventory and Recording Entries Using Relative Sales Value Method Arizona Developers purchased for cash and subdivided a tract of land that cost $990,000. The

Valuing Inventory and Recording Entries Using Relative Sales Value Method

Arizona Developers purchased for cash and subdivided a tract of land that cost $990,000. 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 $990,000 to the three categories of lots. Assume a perpetual inventory system.

	Dr.	Cr.
InventoryLot Category 1	Answer	Answer
InventoryLot Category 2	Answer	Answer
InventoryLot Category 3	Answer	Answer
AnswerCashAccounts ReceivableInventoryAllowance to Reduce Inventory to Net Realizable ValueAllowance to Reduce Inventory to Market ValueAccounts PayableBonus PayableEstimated Liability on Purchase CommitmentRetained EarningsRetained EarningsPrior Period AdjustmentSalesCost of Goods SoldCompensation ExpenseHolding Loss on InventoryEstimated Loss on Purchase CommitmentN/A	Answer	Answer

b. During the final month of the year, the paving was completed (included in the $990,000 cost) and several sales occurred. Inventory remaining at the first year-end was: 20 of the $4,000 lots; 50 of the $3,000 lots; and 10 of the $2,000 lots.

	InventoryLot Category 1	Answer
	InventoryLot Category 2	Answer
	InventoryLot Category 3	Answer
	Total	Answer

Compute the valuation of inventory at the first year-end.
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	Answer	Answer
AnswerCashAccounts ReceivableInventoryAllowance to Reduce Inventory to Net Realizable ValueAllowance to Reduce Inventory to Market ValueAccounts PayableBonus PayableEstimated Liability on Purchase CommitmentRetained EarningsRetained EarningsPrior Period AdjustmentSalesCost of Goods SoldCompensation ExpenseHolding Loss on InventoryEstimated Loss on Purchase CommitmentN/A	Answer	Answer
AnswerCashAccounts ReceivableInventoryAllowance to Reduce Inventory to Net Realizable ValueAllowance to Reduce Inventory to Market ValueAccounts PayableBonus PayableEstimated Liability on Purchase CommitmentRetained EarningsRetained EarningsPrior Period AdjustmentSalesCost of Goods SoldCompensation ExpenseHolding Loss on InventoryEstimated Loss on Purchase CommitmentN/A	Answer	Answer
Inventory	Answer	Answer
To record sale of lots in category 1
Cash	Answer	Answer
AnswerCashAccounts ReceivableInventoryAllowance to Reduce Inventory to Net Realizable ValueAllowance to Reduce Inventory to Market ValueAccounts PayableBonus PayableEstimated Liability on Purchase CommitmentRetained EarningsRetained EarningsPrior Period AdjustmentSalesCost of Goods SoldCompensation ExpenseHolding Loss on InventoryEstimated Loss on Purchase CommitmentN/A	Answer	Answer
AnswerCashAccounts ReceivableInventoryAllowance to Reduce Inventory to Net Realizable ValueAllowance to Reduce Inventory to Market ValueAccounts PayableBonus PayableEstimated Liability on Purchase CommitmentRetained EarningsRetained EarningsPrior Period AdjustmentSalesCost of Goods SoldCompensation ExpenseHolding Loss on InventoryEstimated Loss on Purchase CommitmentN/A	Answer	Answer
Inventory	Answer	Answer
To record sale of lots in category 2
Cash	Answer	Answer
AnswerCashAccounts ReceivableInventoryAllowance to Reduce Inventory to Net Realizable ValueAllowance to Reduce Inventory to Market ValueAccounts PayableBonus PayableEstimated Liability on Purchase CommitmentRetained EarningsRetained EarningsPrior Period AdjustmentSalesCost of Goods SoldCompensation ExpenseHolding Loss on InventoryEstimated Loss on Purchase CommitmentN/A	Answer	Answer
AnswerCashAccounts ReceivableInventoryAllowance to Reduce Inventory to Net Realizable ValueAllowance to Reduce Inventory to Market ValueAccounts PayableBonus PayableEstimated Liability on Purchase CommitmentRetained EarningsRetained EarningsPrior Period AdjustmentSalesCost of Goods SoldCompensation ExpenseHolding Loss on InventoryEstimated Loss on Purchase CommitmentN/A	Answer	Answer
Inventory	Answer	Answer
To record sale of lots in category 3