Use the following information for questions
On March 1, 2010, Beck Company purchased land for an office site by paying $270,000 cash.Beck began construction on the office building on March 1.The following expenditures were incurred for construction:

The office was completed and ready for occupancy on July 1.To help pay for construction,
$360,000 was borrowed on March 1, 2010 on a nine percent, three-year note payable.Other than the construction note, the only debt outstanding during 2010 was a $150,000, 10%, six-year note
payable dated January 1, 2010.
-Jakob Corporation uses the fair value model of accounting for its investment property.The fair values of its property were $124,000 and $129,000 at December 2011 and and December 2012 respectively.At December 2012 Jakob should
A)Recognize a gain of $5,000 in income
B)Report a gain of $5,000 in other comprehensive income
C)Defer the gain until realized
D)none of the above

Question

Use the following information for questions
On March 1, 2010, Beck Company purchased land for an office site by paying $270,000 cash.Beck began construction on the office building on March 1.The following expenditures were incurred for construction:
  
The office was completed and ready for occupancy on July 1.To help pay for construction,
$360,000 was borrowed on March 1, 2010 on a nine percent, three-year note payable.Other than the construction note, the only debt outstanding during 2010 was a $150,000, 10%, six-year note
payable dated January 1, 2010.
-Jakob Corporation uses the fair value model of accounting for its investment property.The fair values of its property were $124,000 and $129,000 at December 2011 and and December 2012 respectively.At December 2012 Jakob should
A)Recognize a gain of $5,000 in income 
B)Report a gain of $5,000 in other comprehensive income 
C)Defer the gain until realized 
D)none of the above

Quizplus · Accepted Answer

The fair value model of accounting requires that changes in fair value be recognized in income. Since the fair value increased by $5,000 from December 2011 to December 2012, a gain of $5,000 should be recognized in income in 2012. Therefore, option A is the correct choice. Option B is incorrect because gains and losses under the fair value model are recognized in income, not in other comprehensive income. Option C is incorrect because there is no requirement to defer gains or losses under the fair value model.

Use the Following Information for Questions