These accounts refer to a large tract of land purchased by the concern some years before, consisting of farming country, a frontage along a main highway, and also a valuable water frontage. The tract was therefore divided into three distinct tracts, viz.:
1. South Bay Farms
2. Villa Sites
3. Water-Front the original cost being divided pro rata on the basis of the respective areas. For two or three years considerable sums were spent for road-making, surveying, draining, and other improvements, and these, as representing physical improvements, had been added to the cost of the property up to the time of the last balance sheet. The total amount so expended was divided among the three subdivisions in proportion to the amount of work done on each tract.
On the other hand, the water-front was not developed in any way, although some improvements for making roads through it were added to the original cost. As the final improvement of this tract was likely to require a great deal of expensive work, such as bulkheading, and as the profits from the South Bay tract a year ago had been considerable, $72,000 was taken from the South Bay profits and held in reserve for future improvements of the water-front, none of this latter having been sold.
The Expense account ($32,805) was considered carefully and, as the owners felt that the property was now fairly well established, it was decided that about one-third ($11,000) should be charged direct to Profit and Loss and that the remaining $21,805 should be distributed as follows:
To Farms Purchase...........
" Villa Site Purchase........
The entire "Commissions" account (No. 103) was charged to Profit and Loss.
The Farms "Gains" results were arrived at as follows:
The open contracts covered 699 farms, which had yielded an average profit of $392.23, the total original sales having been $344,069. These figures showed an unearned profit of $167,269 (which amount is retained in the balance sheet) and earned profits of $72,388.65.
The Villa contracts show that the open contracts included 221 lots, which had yielded originally $34,196, the original sales having been $40,671. These give the following figures: $32,850 / $40,671 X $34,196 - $27,620.14 which is kept in the reserve profits, leaving $5,019.86 to be carried to Profit and Loss.