Lakepoint Company recently accepted a donation of land with a fair value of $200,000 from the city of Dale in return for a promise to build a plant in Dale.
The entry that Lakepoint should use to record this land is:
A) Land.............................. 200,000 Donated Capital-Land 200,000
B) Land.............................. 200,000 Gain from Receipt of Donated Land 200,000
C) Land.............................. 200,000 Unrealized Gain from Receipt of
Donated Land.................. 200,000
D) Land.............................. 200,000 Retained Earnings................ 200,000

Question

Quizplus · Accepted Answer

The correct entry to record the donated land would be to credit donated capital-land for the fair value of the land received ($200,000) and debit land for the same amount. This reflects the fact that the company received the land without paying for it, and the donated capital-land account shows the contribution made by the city of Dale. Option B is incorrect because “gain” implies that the company received something without giving anything in return, which is not the case since they promised to build a plant in Dale. Option C is incorrect because “unrealized gain” refers to an increase in the value of an asset that has not been sold or realized, which does not apply to a donated asset. Option D is incorrect because crediting retained earnings implies that the company made a profit, which is not the case since the land was received as a donation.

Lakepoint Company Recently Accepted a Donation of Land with a Fair