Grace Church, a nondenominational not-for-profit entity, operates a school in connection with the Church.This year members of the Church decided to construct a new wing on the school with six classrooms.The Church hired an architect and a construction supervisor.The bulk of the labor for construction was donated by Church members who were willing workers but not necessarily skilled carpenters.Materials for the construction cost $300,000 and the paid labor was $100,000.The fair value of the completed building is $1 million.When the building is completed what should be the balance in the asset account 'Building' and the account 'Contributed Revenue.'

Question

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The cost of the construction, including materials and labor, was $400,000 ($300,000 + $100,000). However, the fair value of the completed building is $1 million, which should be recorded as the value of the asset in the balance sheet. Therefore, the Building account should be recorded at $1 million. The materials and labor cost of $400,000 should be recorded as a contribution from Church members in the Contributed Revenue account. Therefore, the Contributed Revenue account should be recorded at $600,000 ($400,000 construction cost + $200,000 in-kind contribution from Church members).

Grace Church, a Nondenominational Not-For-Profit Entity, Operates a School in Connection