ABC Inc. purchased Machinery in the amount of $50,000 on January 1^st, 2013. The machinery is estimated to have a 5-year useful life with no salvage value. The machinery qualifies for a 20% government subsidy. As a result, ABC Inc. received a government subsidy of $10,000 toward the purchase of the equipment. What is the effect of this subsidy on the company's 2013 Statement of Earnings/Comprehensive Income?

Question

Quizplus · Accepted Answer

The government subsidy of $10,000 will reduce the cost of the machinery to $40,000 ($50,000 - $10,000). The amortization expense for the year will be $8,000 ($40,000/5 years). Since the subsidy was only 20% of the cost, it will result in a $2,000 decrease in the amortization expense for 2013.

ABC Inc Purchased Machinery in the Amount of $50,000 on January