In 2021, Waverly Corp. set up a new manufacturing facility in Nova Scotia. To encourage Waverly to set up its factory, the province provided equipment with a fair value of $250,000, and estimated residual value of $0, and an estimated useful life of 10 years using straight-line depreciation. What journal entry would be required in fiscal 2022, using the gross method?
A)A credit to donation revenue of $25,000.
B)A credit to other comprehensive income - donated assets of $25,000.
C)A credit to other income - government grant of $25,000.
D)A credit to depreciation expense for $25,000.

Question

Quizplus · Accepted Answer

The gross method requires recognizing the government grant as income over the useful life of the asset. Therefore, $25,000 ($250,000/10 years) is credited to other income - government grant annually.