Question

Waterway County owned an idle parcel of real estate consisting of land and a factory building. Waterway gave title to this realty to Carla Vista Co. as an incentive for Carla Vista to establish manufacturing operations in the County. Carla Vista paid nothing for this realty, which had a fair value of $225000 at the date of the grant. Carla Vista should record this nonmonetary transaction as a:

A. credit to Contribution Revenue for $225000
B. memo entry only
C. credit to Donated Capital for $225000.
D. credit to Comprehensive Income for $225000.

Answer 1

C. credit to Donated Capital for $225000.

Step-by-step explanation:

Land is contributed as capital in order to establish manufacturing operations. It will be recorded on the fair value of Land.

Journal Entry for this transaction is as follow

Dr. Land $225,000

Cr. Donated Capital $225,000

Land is the recorded as an asset for the company and the assets have debit nature. To increase the assets value we have to debit the land and building account.

Capital account has credit nature and it needs to be credited.