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Prepare journal entries to record the purchase of factory

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Reference no: EM132601749

Needy Inc. qualified for a 30% government cash grant that would assist the company in the purchase of a new factory for its bicycle manufacturing operations. The cost of the factory is $ 20,000,000 and the new factory has an estimated useful life of 40 years. The cash was awarded on January 1, 2018, and received on January 28, 2018, and the factory was purchased on January 1, 2018 by the company's issuing a note to the seller. The company uses the straight-line method for depreciation.

Question a) Assuming that Needy uses the cost reduction method, prepare the journal entries to record the purchase of the factory and the receipt of the government grant.

Question b) Assuming that Needy uses the deferral method, prepare the journal entries to record the purchase of the machinery, and the receipt of the grant.

Question c) all December 31, 2018 adjusting journal entries related to the machinery.

Question d) Discuss briefly the accounting theoretical arguments for not using the method in (a) and the method in (b).

Reference no: EM132601749

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