[Oimie]

NINJA Question –

Pine City owned a vacant plot of land zoned for industrial use. Pine gave this land to Medi Corp. solely as an incentive for Medi to build a factory on the site. The land had a fair value of $300,000 at the date of the gift. This nonmonetary transaction should be reported by Medi as:

A. extraordinary income.

B. additional paid-in capital.

C. a credit to retained earnings.

D. a memorandum entry.

Answer is addition paid-in capital.

I never heard of this nor do I remember going over it in either of my Wiley and Roger’s review. Which topic is this under? I checked under non-monetary exchanges and I do not see anything related to this. And all along I had thought only stocks could affect APIC. Anyone can tell me more about this? Or there’s not much more to this except for the fact that gifts increase APIC?

FAR 85 June 2015
AUD 80 Nov 2015
REG 83 Nov 2015
BEC 79 Feb 2016

[Oimie]

Man wth? Immediately after the previous question, I was given this question. I was so sure it was A but I picked C cause the previous question threw me off. On top of that, B and C are pretty much saying different things, so I thought to myself, how can both B and C be correct?

Which of the following statements concerning the acquisition of assets is false?

A. Donated assets should be recorded at book value along with any incidental costs incurred.

B. When an asset is received from a governmental entity, no income is recognized, and the offsetting credit is to an owners’ equity account, “Additional Paid-In Capital: Donated Assets.”

C. Assets donated by entities other than governmental units are included in revenue in the period of receipt.

D. If several dissimilar assets are purchased for a lump sum, the total amount paid should be allocated to each individual asset on the basis of its relative fair value.

FAR 85 June 2015
AUD 80 Nov 2015
REG 83 Nov 2015
BEC 79 Feb 2016

[Oimie]

Anyone? 🙁

FAR 85 June 2015
AUD 80 Nov 2015
REG 83 Nov 2015
BEC 79 Feb 2016

[Oimie]

Bump

FAR 85 June 2015
AUD 80 Nov 2015
REG 83 Nov 2015
BEC 79 Feb 2016

[Oimie]

Bump

FAR 85 June 2015
AUD 80 Nov 2015
REG 83 Nov 2015
BEC 79 Feb 2016

[Oimie]

Bump

FAR 85 June 2015
AUD 80 Nov 2015
REG 83 Nov 2015
BEC 79 Feb 2016

[Anonymous]

Maybe because the gift has a purpose? And therefore it's not considered income to the company, and it cannot be used for any operating expenses. Not sure. Weird MCQ indeed.

[Oimie]

@Another85: The first question is saying donated assets are reported as APIC. The second question says recording donated assets as revenue is true. =_=

=_==_==_==_==_==_==_==_==_==_==_==_==_==_==_==_=

FAR 85 June 2015
AUD 80 Nov 2015
REG 83 Nov 2015
BEC 79 Feb 2016

[Anonymous]

I don't understand. What is the correct answer for the 2nd question? Is it B or C?

[Oimie]

@Another85: Correct answer for second one is A. It is false. It should be recorded at FV + acquistion costs. And that's funny cause B and C looks like opposites to me.

FAR 85 June 2015
AUD 80 Nov 2015
REG 83 Nov 2015
BEC 79 Feb 2016

[Anonymous]

@Oimie

The two multiple choice you provided confirm each other, which confirms the following:

Donated assets from government should be credited to APIC of the recipient company.

Choices B and C do not contradict each other. Please read them again, and notice that they say the following:

B: when you receive asset donation from ((government)), report it as increase in APIC (This is exactly what 1st MCQ says).

C: when you receive asset donation from ((non-government)), report as revenue.

[Oimie]

@Another85: Oh I see! I honestly don't know how I missed that. Probably cause I am so sick while studying. Thanks a lot! But I am still wondering which topic is this under. I didn't know there were things that can affect APIC other than stocks.

FAR 85 June 2015
AUD 80 Nov 2015
REG 83 Nov 2015
BEC 79 Feb 2016

[Anonymous]

@Oimie

I think the reason is that a donation from the government is an asset that you can not sell and use proceeds in operations. Once the government donates it to you, you must use it as the government says, so it becomes embedded in your capital that you cannot take from unless you're liquidating.

Not sure if my reasoning is correct, but I can't think of any other explanation.

[Oimie]

@Another85: Thanks for helping!

FAR 85 June 2015
AUD 80 Nov 2015
REG 83 Nov 2015
BEC 79 Feb 2016

[Author]

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