Shorecrest Company recently accepted a donation of land with a fair value of $250,000 from the city of Sutton in return for a promise to build a plant in Sutton. The entry that Shorecrest should use to record this land is:
A) Land..............................250,000
Donated Capital-Land 250,000
B) Land..............................250,000
Gain from Receipt of Donated Land 250,000
C) Land..............................250,000
Unrealized Gain from Receipt of
Donated Land..................250,000
D) Land..............................250,000
Retained Earnings................250,000

Question

Quizplus · Accepted Answer

When a company receives a donation of land, it should record it at its fair value at the time of donation. In this case, the fair value of the land is $250,000. The journal entry to record the land should be a debit to Land for $250,000 and a credit to Donated Capital-Land for $250,000. This is because the land is not revenue and should not be recognized as a gain. Donated capital represents the amount of contributed capital a company receives from nonstock transactions. This transaction is also not related to the company's earnings or retained earnings, so options B, C, and D are not appropriate.

Shorecrest Company Recently Accepted a Donation of Land with a Fair