Final answer:
The correct journal entry for the donation of land to a charity records the fair market value, which is $100,000, as both a debit to the Land account and a credit to the Donations Revenue account. None of the provided options are correct.
Step-by-step explanation:
Journal Entry for Donation of Land
The correct journal entry to record the donation of land by a company to a local charity is to debit the Land account and credit the Donations Revenue account. However, the amounts to be debited and credited create a challenge since the land's book value differs from its appraised value. The book value represents the land's value on the company's books, while the appraised value represents the fair market value at the time of donation.
When a company donates an asset like land, Generally Accepted Accounting Principles (GAAP) state that the donation should be recorded at fair value. Therefore, the correct journal entry would be:
Debit: Land $100,000
Credit: Donations Revenue $100,000
This entry reflects the land's fair value and results in recognizing a contribution revenue in the amount of the land's fair market value. This donation would typically result in a charitable donation expense for the donor but, for accounting purposes, revenue is recognized for the fair value of non-financial assets contributed to the entity.
Options Analysis
Among the given options:
Option 1 is incorrect because it debits Land for its book value rather than its fair market value.
Option 2 is incorrect because it debits Donations Revenue, which is not in accordance with standard accounting practices.
Option 3 swaps the values for Land and Donations Revenue incorrectly, thus it is incorrect.
Option 4 incorrectly labels the contribution as an expense rather than revenue.
Therefore, none of the provided options correctly represent the journal entry for the transaction described.