Question Details

Prepare the journal entry(ies) to record the grant and note payable on January 2, 2011



Ex. 1--Non-Monetary Exchange
Ramirez Company exchanged equipment used in its manufacturing operations plus $6,000 in cash for similar equipment used in the operations of Kennedy Company. The following information pertains to the exchange.

	Ramirez Co	Kennedy Co
		Equipment (cost)	   84,000               $84,000
		Accumulated depreciation	   57,000                 30,000
		Fair value of equipment	   40,500                 46,500
	Cash given up		     6,000

Instructions
(a) Prepare the journal entries to record the exchange on the books of both companies. Assume that exchange lacks commercial substance.
(b) Prepare the journal entries to record the exchange on the books of both companies. Assume that exchange has commercial substance.
Ex. 2--Government Grants
Winsor Corp. received a grant from the government of £160,000 to acquire £800,000 of delivery equipment on January 2, 2011. The delivery equipment has a useful life of 4 years. Winsor Corp. uses the straight-line method of depreciation. The delivery equipment has a zero residual value.

Instructions
  (a) If Winsor Corp. reports the grant as a reduction of the asset, answer the following questions.
      (1)	 What is the carrying amount of the delivery equipment at December 31, 2011?
      (2)	 What is the amount of depreciation expense related to the delivery equipment in 2012?
      (3)	 What is the amount of grant revenue reported in 2011 on the income statement?
  (b) If Winsor Corp. reports the grant as deferred grant revenue, answer the following questions.
      (1)	 What is the balance in the deferred grant revenue account at December 31, 2011?
      (2)	 What is the amount of depreciation expense related to the delivery equipment in 2012?
      (3)	 What is the amount of grant revenue reported in 2011 on the income statement?

Ex. 1--Non-Monetary Exchange
Ramirez Company exchanged equipment used in its manufacturing operations plus $6,000 in cash for similar equipment used in the operations of Kennedy Company. The following information pertains to the exchange.

	Ramirez Co	Kennedy Co
		Equipment (cost)	   84,000               $84,000
		Accumulated depreciation	   57,000                 30,000
		Fair value of equipment	   40,500                 46,500
	Cash given up		     6,000

Instructions
(a) Prepare the journal entries to record the exchange on the books of both companies. Assume that exchange lacks commercial substance.
(b) Prepare the journal entries to record the exchange on the books of both companies. Assume that exchange has commercial substance.
Ex. 2--Government Grants
Winsor Corp. received a grant from the government of £160,000 to acquire £800,000 of delivery equipment on January 2, 2011. The delivery equipment has a useful life of 4 years. Winsor Corp. uses the straight-line method of depreciation. The delivery equipment has a zero residual value.

Instructions
  (a) If Winsor Corp. reports the grant as a reduction of the asset, answer the following questions.
      (1)	 What is the carrying amount of the delivery equipment at December 31, 2011?
      (2)	 What is the amount of depreciation expense related to the delivery equipment in 2012?
      (3)	 What is the amount of grant revenue reported in 2011 on the income statement?
  (b) If Winsor Corp. reports the grant as deferred grant revenue, answer the following questions.
      (1)	 What is the balance in the deferred grant revenue account at December 31, 2011?
      (2)	 What is the amount of depreciation expense related to the delivery equipment in 2012?
      (3)	 What is the amount of grant revenue reported in 2011 on the income statement?

Ex. 3--Government Grants
Bowden Company is provided a grant by the local government to purchase land for a building site. The grant is a zero-interest-bearing note for 4 years. The note is issued on January 2, 2011, for €3 million payable on January 2, 2015. Bowden's incremental borrowing rate is 6%. The land is not purchased until July 15, 2011.

Instructions
   (a) Prepare the journal entry(ies) to record the grant and note payable on January 2, 2011.
   (b) Determine the amount of interest expense and grant revenue to be reported on December 31, 2011.




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