Question Details

Whether Lee chooses to account for the grant as deferred revenue or as an adjustment 



Use the following information for questions 1-5.

Lee Company received an HK$1,800,000 subsidy from the government to purchase manufacturing equipment on January, 2, 2011. The equipment has a cost of HK$3,000,000, a useful life a six years, and no salvage value. Lee depreciates the equipment on a straight-line basis.

 
1.	If Lee chooses to account for the grant as deferred revenue, the grant revenue recognized will be:
a.	Zero in the first year of the grant's life.
b.	HK$300,000 per year for the years 2011-2016.
c.	HK$500,000 per year for the years 2011-2016.
d.	$HK1,800,000 in 2011.

2.	If Lee chooses to account for the grant as deferred revenue, the amount of depreciation expense recorded in 2011 will be:
a.	HK$0.
b.	HK$200,000.
c.	HK$300,000.
d.	$HK500,000.

3.	If Lee chooses to account for the grant as an adjustment to the asset, the amount of depreciation expense recorded in 2011 will be:
a.	HK$0.
b.	HK$200,000.
c.	HK$300,000.
d.	$HK500,000.

4.	If Lee chooses to account for the grant as an adjustment to the asset, the book value of the asset on the 2012 statement of financial position will be:
a.	HK$800,000.
b.	HK$1,200,000.
c.	HK$2,800,000.
d.	$HK2,400,000.

5.	Whether Lee chooses to account for the grant as deferred revenue or as an adjustment to the asset, the combined impact of deferred grant revenue recognition and/ or depreciation expense recorded per year will be:
a.	decrease to net income of HK$200,000.
b.	decrease to net income of HK$300,000.
c.	increase to net income of HK$500,000.
d.	increase to net income of HK$100,000.



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