Question

Prepare journal entries for each of the following transactions entered into by the City of Loveland.

The city received a donation of land that is to be used by Parks and Recreation to develop a public park. At the time of the donation, the land had an acquisition value of $5,200,000 and was recorded on the donor's books at a historical cost of $4,500,000.
a. Debit: Land $5,200,000; Credit: Donation Revenue $5,200,000

b. Debit: Land $4,500,000; Credit: Donation Revenue $4,500,000

c. Debit: Parks and Recreation Expense $5,200,000; Credit: Land $5,200,000

d. Debit: Land $5,200,000; Credit: Parks and Recreation Revenue $5,200,000

Answer 1

The correct journal entry for the City of Loveland receiving a land donation to be used for a public park is to debit Land for $5,200,000 and credit Donation Revenue for $5,200,000, reflecting the land's fair market value.

Step-by-step explanation:

When the City of Loveland receives a donation of land, it should recognize the land at its fair market value at the time of the donation. In this case, the fair market value of the land is $5,200,000. Therefore, the correct journal entry to record this transaction would be as follows:

Debit: Land $5,200,000
Credit: Donation Revenue $5,200,000

This entry reflects the increase in the assets of the city (the land) and also records the increase in equity, represented by the donation revenue. The value recorded on the donor's books is not relevant for the city's accounting records. Since the transaction is a donation, it does not qualify as an expense for the city; it is a contribution that increases the city's net position.