Question

In: Accounting

A government is the recipient of a bequest of a multi-story office building that the government...

A government is the recipient of a bequest of a multi-story office building that the government intends to use as a new city hall. The building has a historical cost of $850,000; a book value in the hands of the benefactor of $700,000; and a fair value of $1,050,000. The city should recognize on its governmental fund financial statements donations revenue of

  1. $-0-.
  2. $700,000.
  3. $850,000.
  4. $1,050,000

Explanation to the answer please

Solutions

Expert Solution

Answer: d) 1050000

Explanation : In the given question we have been provided with the information that Government in the recipient of a bequest of a multi-story office building having the  historical cost of $850,000; a book value in the hands of the benefactor of $700,000; and a fair value of $1,050,000. the government intends to iuse it as a new city hall. this means that the government wants to use its capital asset (multi-story office building ) for the use of new capital project (new city hall). As per GAAP the donated capital assets should be recorded at their fair value of the asset as of the date on which donation is being made .For this purpose, we can understand fair value as referring to what it would have costed the government to acquire the asset, not the reselling amount of the asset. Hence The city should recognize on its governmental fund financial statements donations revenue at fair value.


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