Stellar 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 Stellar qualified for a government grant of $20,000. Stellar collected the grant after providing proof of the purchase.
Assuming that Stellar uses the cost reduction method, prepare the journal entries to record the purchase of the equipment and the receipt of the government grant.
Assuming that Stellar uses the deferral method, prepare the journal entries to record the purchase of the equipment, the receipt of the grant, and the adjusting entry required at the end of the first year (assuming the equipment was purchased on the first day of the fiscal year).
Cost of Equipment | 140000 | ||
Grant Received | 20000 | ||
Useful Life | 10 | years | |
(a) | Cost Reduction Method | ||
No. | Particulars | Debit | Credit |
1 | Equipment Dr | 140000 | |
To cash | 140000 | ||
(Being purchase of equipment) | |||
2 | Cash Dr | 20000 | |
To Equipment | 20000 | ||
(Being Government grant received.) | |||
3 | Depreciation Dr | 12000 | |
To Equipment | 12000 | ||
(Being Depreciation charged as per SLM) | |||
(b) | Deferral Method | ||
No. | Particulars | Debit | Credit |
1 | Equipment Dr | 140000 | |
To cash | 140000 | ||
(Being purchase of equipment) | |||
2 | Cash Dr | 20000 | |
To Deferred Income | 20000 | ||
(Being Government grant received.) | |||
3 | Deferred Income Dr | 2000 | |
To Income from Government Grant | 2000 | ||
(Being Deferred Income amortized over useful life of equipment.) | |||
4 | Depreciation Dr | 14000 | |
To Equipment | 14000 | ||
(Being Depreciation charged as per SLM) |
(Kindly Rate Positively, if found helpful.)
Stellar Enterprises purchased a new piece of equipment for its factory under a new government incentive...
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