On July 1, Kramerica Enterprises received a donation of 100 acres of land from t

Question

On July 1, Kramerica Enterprises received a donation of 100 acres of land from the city of East Lafayette as an incentive for Kramerica to locate a new plant in East Lafayette. The city requires that Kramerica Enterprises must build a manufacturing plant and a warehouse containing at least 180,000 square feet. In addition, at least 20 acres must be used as a greenspace that is open to the public. All construction must be completed within three years. At the time of the donation, the fair market value of the tract of land was $2,200,000. As of December 31, construction had not begun. How should this transaction be reflected in Kramerica’s December 31 financial statements?

This is an essay question, please answer as detailed as possible. Thank you!

Explanation / Answer

Journal Entry

Land account debited and contribution revenue account will be credited at the fair market value of $ 2,200,000.00

Land A/c Dr. $ 2,200,000.00

To Donarion Revenue $ 2,200,000.00

Land wiil be shown as an asset(fixed asset) in the balance sheet in the books of Kramerica Enterprises

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