In 2012, New Wave Inc. (NW)set up a new manufacturing facility in Manitoba. To encourage NW to set up its factory, the province provided equipment with a fair value of $75,000 and an estimated useful life of 10 years using straight-line depreciation. What journal entry would be required to record the equipment contribution in fiscal 2012, using the net method?

Question

Quizplus · Accepted Answer

The equipment is provided to NW for their use in the business, so it should be recorded as property, plant, and equipment, not a donation. The net method means that the full fair value of $75,000 should be credited to property, plant, and equipment, even though NW did not pay for the equipment. Therefore, the correct journal entry would be a debit to property, plant, and equipment for $75,000 and a credit to contributed capital - equipment for $75,000. However, since the question specifically asks for the net method and does not mention contributed capital, answer choice D is the most appropriate.