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    Allocating Costs to Condos and Balance Sheet Presentation

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    Windham Condos Corporation is a small company owned by Caleb Norman. It leases three condos of differing sizes to customers as vacation facilities. Labor costs for each condo consist of maid service and maintenance cost. Other direct operating costs consist of interest and depreciation. The direct operating costs for each condo follow.

    Direct Labor:

    Condo 1 - $14,400
    Condo 2 - $18,600
    Condo 3 - $22,500
    Total = $55,500

    Other Direct Operating Costs:

    Condo 1 - $36,000
    Condo 2 - $42,000
    Condo 3 - $57,000
    Total = $135,000

    Indirect operating expenses, which amounted to $40,500, are allocated to the condos in proportion to the amount of other direct operating costs incurred for each.

    Required.

    A. Assume that the amount of rent revenue from Condo 2 is $96,000, what amount of income did it earn?

    B. Based on the preceding information, will the company show finished goods inventory on its balance sheet? If so, what is the amount of this inventory? If not, explain why not.

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    Solution Preview

    A. The company earned $22,800 on Condo #2. This consisted of:

    Revenues $96,000
    Expenses:
    Direct Labor $18,600
    Other Direct Operating Costs ...

    Solution Summary

    Windham Condos Corporation is a small company owned by Caleb Norman. It leases three condos of differing sizes to customers as vacation facilities. Labor costs for each condo consist of maid service and maintenance cost. Other direct operating costs consist of interest and depreciation. The direct operating costs for each condo follow.

    Direct Labor:

    Condo 1 - $14,400
    Condo 2 - $18,600
    Condo 3 - $22,500
    Total = $55,500

    Other Direct Operating Costs:

    Condo 1 - $36,000
    Condo 2 - $42,000
    Condo 3 - $57,000
    Total = $135,000

    Indirect operating expenses, which amounted to $40,500, are allocated to the condos in proportion to the amount of other direct operating costs incurred for each.

    Required.

    A. Assume that the amount of rent revenue from Condo 2 is $96,000, what amount of income did it earn?

    B. Based on the preceding information, will the company show finished goods inventory on its balance sheet? If so, what is the amount of this inventory? If not, explain why not.

    $2.49

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