Savings Mart is a national retail chain. To entice the company to open a mega store in its jurisdiction, the city of Populationville donated a 20-acre tract of land to be used for construction. The land was originally purchased by the city for $250,000 three years ago. The appraisal value at the time of the donation was $300,000. For what amount should Savings Mart record the donated land?

Question

Quizplus · Accepted Answer

According to accounting principles, donated assets should be recorded at their fair market value at the time of donation. In this case, the fair market value of the land was appraised at $300,000, so Savings Mart should record the donated land at that amount. Option A is incorrect because it ignores the appreciation in value since the city purchased the land. Option B is incorrect because it is an arbitrary middle ground between the purchase price and appraisal value. Option D is incorrect because GAAP requires donated assets to be recorded at fair value.

Savings Mart Is a National Retail Chain