Question: Eagle Ridge Inc was in the final phase of completing

Eagle Ridge, Inc., was in the final phase of completing a land development project it started earlier in the year. Eagle Ridge, Inc., had acquired 100 acres of raw land for $250,000 and then spent an additional $1,650,000 in land development costs to create a new subdivision with 200 residential lots. With a total cost of $1,900,000 and 200 lots, each lot had a cost of $9,500; however, the lots were listed for sale at $32,000 per lot. Eagle Ridge, Inc., was applying for a business loan and needed to provide current financial statements to the bank. Jill Hamilton, the company president, wanted to report the total current value of the lots, $6,400,000 (200 lots x $32,000 per lot), rather than the total cost currently listed on the balance sheet, $1,900,000. Dave Jamison, the company accountant, told Jill that the lots were inventory and that they should be reported on the balance sheet at the $1,900,000 rather than the fair market value.
Should the balance sheet for Eagle Ridge, Inc., list the lots at the total cost of $1,900,000 or the total selling price of $6,400,000? Could Eagle Ridge, Inc., provide one balance sheet using historical cost and another balance sheet using market value?

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  • CreatedApril 29, 2014
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