Grace Church, a 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 $600,000 and the paid labor was $200,000.The fair value of the completed building is $2 million.When the building is completed what should be the balance in the asset account "Building" and the account "Contributed Revenue"?

Question

Quizplus · Accepted Answer

The cost of materials and paid labor ($800,000) should be capitalized as the cost of constructing the building. The fair value of the completed building ($2 million) should be recorded as the building's value. The difference between the cost and the fair value ($1.2 million) should be recorded as contributed revenue, as it represents a contribution of resources from the Church members. Therefore, the balance in the asset account "Building" should be $2 million and the balance in the account "Contributed Revenue" should be $1.2 million.

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