Question

Pina Enterprises purchased a new piece of equipment for its factory under a new government incentive program in exchange for cash. The equipment cost $140,000 and had an estimated useful life of 10 years. The program was intended to encourage companies to invest in new, innovative technologies. The new piece of equipment purchased by Pina qualified for a government grant of $23,800. Pina collected the grant after providing proof of the purchase. Assuming that Pina uses the cost reduction method, prepare the journal entries to record the purchase of the equipment and the receipt of the government grant. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.) Account Titles and Explanation Debit Credit (To record purchase of equipment) (To record collection of government grant)

Answer 1

Government Grants-Cost reduction method:
Account Titles and Explanation	Debit	Credit
Equipment	140000
Cash		140000
(To record purchase of equipment)
Cash	23800
Equipment		23800
(To record collection of government grant)
Government Grants-Deferral method:
Account Titles and Explanation	Debit	Credit
Equipment	140000
Cash		140000
(To record purchase of equipment)
Cash	23800
Deferred revenue		23800
(To record collection of government grant)
Deferred revenue	2380
Revenue ($23800/10)		2380
(To record year end adjusting entry)