Kitchigami Limited was attracted to the Town of Mornington by the town's municipal industry commission. Mornington donated a plant site to Kitchigami, and the provincial government provided S150,000 toward the cost of the new manufacturing facility. The total cost of plant construction came to $380,000 and it was ready for use in early October 2014. Kitchigarni expects the plant to have a useful life of 15 years before it becomes obsolete and is demolished. The company uses the straight-line method of depreciation for buildings and is required to include the plant in Class 6 (10% rate) for tax purposes.
Instructions
(a) Prepare the entry(ies) that are required in 2014 to record the payment to the contractor for the building and the receipt of the provincial government assistance. Assume that the company treats the assistance as a reduction of the asset's cost. Also prepare any adjusting entries that are needed at the company's year ends, December 31, 2014, and 2015.
(b) Repeat (a), but assume instead that the company treats the government assistance as a deferred credit.
(c) If Kitchigami reports 2015 income of $79,000 before depreciation on the plant and government assistance, what income before tax will the company report assuming (a) above? Assuming (b) above?
(d) What is the building's tax value at December 31, 2015?