The City of Portland Gives Data Corporation $60,000 Cash and Land

question 40

Multiple Choice

The City of Portland gives Data Corporation $60,000 cash and land worth $100,000 to induce it to move. The cash was not spent during the 12 months following contribution. The contribution results in

• A)income recognition in the amount of $160,000 to the corporation at the time of contribution.
• B)income recognition in the amount of $60,000 to the corporation 12 months after the time of contribution.
• C)a zero basis in the land and $60,000 ordinary income to the corporation 24 months after the time of contribution if the cash is not used to purchase an asset.
• D)a zero basis in the land and a $60,000 basis reduction in other assets.

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Definitions:

12-month Period

A 12-month period typically refers to a full year, used in financial reporting and analysis to compare performance or changes over the span of a year.

Income Summary Account

A temporary account used in the closing process to summarize the period's revenues and expenses before transferring the net income or loss to retained earnings.

Permanent Accounts

Permanent accounts refer to the balance sheet accounts whose balances are carried over into the next accounting period, including assets, liabilities, and equity accounts.

Revenue Recognition Principle

An accounting principle that dictates the specific conditions under which revenue is recognized or recorded, ensuring it's captured in the period it is earned.