[agripper]

My question is why is the answer to this problem paid in Capital went my reading indicates it is under revenue witch is retained earnings.

CPA 2015.0 – FAR

Property, Plant, and Equipment, Question # 1522

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.

Incorrect

C.

 

a credit to retained earnings.

D.

 

a memorandum entry.

You answered C. The correct answer is B.

Only additional paid-in capital is an acceptable way to account for this donated land. The land has to be added to the assets, so a memo entry is not sufficient, and this would generally not qualify as extraordinary, nor as an adjustment directly to retained earnings.

NOTE:  Update 2015-01 eliminates the concept of extraordinary items, to be tested 10/15.