In 2021, 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 2021, using the net method?

Question

Quizplus · Accepted Answer

The correct journal entry to record the equipment contribution would involve debiting property, plant, and equipment for $75,000 to recognize the asset received and crediting a corresponding account (like government grants or deferred income) for $75,000 to recognize the contribution. However, since the options provided do not include a specific credit account for government grants or similar, the closest and most appropriate option given is to credit property, plant, and equipment for $75,000, effectively showing the asset's addition to the company's books. This reflects the increase in assets due to the equipment contribution.