Question

Flounder Enterprises purchased a new piece of equipment for its factory under a new government incentive program in exchange for cash. The equipment cost $153,000 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 Flounder qualified for a government grant of $29,400. Flounder collected the grant after providing proof of the purchase.

Assuming that Flounder 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 0 for the amounts.)

Account Titles and Explanation	Debit	Credit
(To record purchase of equipment)
(To record collection of government grant)

SHOW LIST OF ACCOUNTS

Assuming that Flounder 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). (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 0 for the amounts.)

Account Titles and Explanation	Debit	Credit
(To record purchase of equipment)
(To record collection of government grant)
(To record year end adjusting entry)

Answer 1

Ans:

1. Assume company uses Cost reduction method: following are the journal entries

S.no	Account title and explanation	Debit($)	Credit($)
1	Equipment	153,000
	Cash		153,000
	( to record the purchase of equipment)
2.	Cash	29,400
	Equipment		29,400
	( to record collection of government Grant)

2. Assuming that Flounder uses the deferral method,

S.no	Account title and explanation	Debit($)	Credit($)
1.	Equipment	153,000
	Cash		153,000
	( to record the purchase of equipment)
2.	Cash	29,400
	Deferral Grant Income		29,400
	( to record collection of government Grant)
3.	Deferral grant Income{29,400/10}	2,940
	Equipment		2,940
	( to record year end adjusting entry)