On July 1, 2011, Apache Company sold a parcel of undeveloped land to a construction company for $3,000,000

BE 5-1 On July 1, 2011, Apache Company sold a parcel of undeveloped land to a construction company for $3,000,000. The book value of the land on Apache's books was $1,200,000. Terms of the sale required a down payment of $150,000 and 19 annual payments of $150,000 plus interest at an appropriate interest rate due on each July 1 beginning in 2012. Apache has no significant obligations to perform services after the sale. How much gross profit will Apache recognize in both 2011 and 2012 applying the cost recovery method?


Click here for the solution: On July 1, 2011, Apache Company sold a parcel of undeveloped land to a construction company for $3,000,000

On February 1, 2007, Reardon Corporation purchased a parcel of land as a factory site for $320,000

On February 1, 2007, Reardon Corporation purchased a parcel of land as a factory site for $320,000. An old building on the property was demolished and construction begun on a new warehouse that was completed April 15, 2008. Costs incurred on the construction project are listed below.

Demolition of old building $21,000
Architect's fees 31,700
Legal fees/title investigation 4,100
Construction costs 950,000
Imputed interest based on stock financing 14,000
Landfill for building site 19,300
Clearing of trees from the building site 9,600
Temporary buildings used for construction activities 29,000
Land survey 4,000
Excavation for basement 13,200
(Salvage materials from demolition sold for $1,800)
(Timber sold for $3,300)

Determine the cost of the land and new building.

Click here for the solution: On February 1, 2007, Reardon Corporation purchased a parcel of land as a factory site for $320,000

Pernal owned a parcel of real estate adjacent to property owned by St. Nicholas Greek Orthodox Church

Pernal owned a parcel of real estate adjacent to property owned by St. Nicholas Greek Orthodox Church. Pernal sent a letter to the church indicating that he was offering it for sale for “$825,000 cash/mortgage ‘as is,’ with no conditions, no contingencies related to zoning and 120 days post closing occupancy for the present tenants.” This offer was dated June 3, 2003, and expressly provided that it would remain open for a two-week period. On the same day, Pernal also sent the same offer to sell the property on the same terms to another prospective purchaser, White Chapel Memorial Association Park Perpetual Care Trust. On June 4, the church sent a letter indicating that it accepted the terms of the offer that Pernal had set forth in his letter. However, the church’s letter also referenced an attached purchase agreement. The purchase agreement agreed with Pernal’s purchase price and the close occupancy period, but contrary to the offer, it contained additional terms. The church’s president signed this attached purchase agreement, but defendant did not sign it. The offer by letter dated June 3, 2003, did not reference other potential purchasers. On June 10, White Chapel, by letter, offered to pay $900,000 cash for the property, with no conditions or contingencies related to zoning and 180 days post closing occupancy rent free. On that same date (June 10), Pernal sent a letter to both potential purchasers. This letter indicated that “amended offers” had been received. The letter further provided that the offer would remain open for two weeks’ time as provided in the initial offering letter. On June 13, the church sent a letter to Pernal, stating that the offer had been accepted on June 4, and that an enforceable contract was formed. The church sued Pernal for breach of contract. Will it win?

Click here for the solution: Pernal owned a parcel of real estate adjacent to property owned by St. Nicholas Greek Orthodox Church