In order to induce North corporation to build a new football

In order to induce North corporation to build a new football stadium in Irwindale , California , the City of Irwindale donates land ( fair market value of $750000) and cash of $1000000 to the corporation. Within several months of the donation, North corporation spends $3500000 on the construction of a new stadium located on the land. North corp. used the $100000 cash to help pay for the construction of the stadium. Which of the following statements is correct?

a) North Corporation must recognize income of $1,750,000 for the donation.

b) North Corporation will have a zero basis in the land and a basis of $3500000 in the stadium.

c) North Corporation will have a zero basis in the land and a basis of $2,500,000 in the stadium.

d) North Corporation must recognize income of $750000 for the donation

e) None of the above

Solution

Contributions received shall be recognized as revenues or gains in the period received. Contributions received shall be measured at their fair values.

Thus, correct option is A.

$1750000 must be recognized as revenues.