Question

The County of Santa Clara gave a parcel of land to the 49ers Company as part of an agreement requiring the 49ers to construct its football stadium on the donated land. The land cost the county $12,800,000 when purchased several years ago and had an appraised value of $20,000,000 on the date it was given to the 49ers. As a result of the donation, the 49ers should record:_________

Answer 1

c. A credit to revenue of $20,000,000.

Step-by-step explanation:

"land cost the county $12,800,000 when purchased several years ago and had an appraised value of $20,000,000 on the date it was given to the 49ers", here it was stated here that the land was donated to the 49ers which is a credit to the 49ers account. The present value of the land is recorded.

In accounting, Accountants will record the present value when neither the cash amount, the cash equivalent amount, nor the fair market value of an item in a transaction is known. Accountants will also calculate a present value to determine an implicit interest rate or the effective interest rate.

Answer 2

A credit to revenue of $20,000,000.

Step-by-step explanation:

In accounting when an asset is obtained we value it at the present prevailing market price. This gives a valid historical cost on which to estimate future value of the land.

In the given case the land was given to the 49ers based on an agreement. Although County of Santa Clara bought the land for $12,800,000, we are more interested in the present value at the time of the transaction.

So we will record $20,000,000 as a credit to revenue.