ACCT 3310 Intermediate Accounting Final PRACTICE (Summer 2020) Question 2 - Govt Grant Wind Town Corporation is a builder of wind turbines that are used in electricity generation in Northern Ontario. To encourage the installation of wind turbines and the development of wind power technology, the provincial government has several programs in place that support the industry. In 2018, Wind Town incurred the following costs that were potentially eligible for government subsidies: a. The company spent $10 million on research and development (R\&D); these costs are eligible for a 25% tax credit. The $10 million had been previously expensed. b. Wind Town is eligible for a full tax rebate on sales tax normally levied on materials used in the construction of its turbine factory. This sales tax amounted to 5% of the materials cost of $35 million. c. Other than materials cost of $35 million incurred in constructing the turbine factory, the company also incurred the following costs: $500,000 architect and survey fees; $2 million direct labour during construction; $600,000 paid for land including removal of old building. The life of the turbine factory is 20 years, with a salvage value of $2 million. The company uses the straight-line method for recording depreciation. The building was completed by end of the year 2018. d. The government will provide the company an additional $200,000 in 3 years if it maintains an average of 100 workers per year in Northern Ontario. During the first year start-up phase 2018 , the company only employs 10 workers in Northern Ontario. e. The government will provide a grant of $90,000 for site clean up which the company will incur over the next three years: $50,000 (year 2018); $150,000 (year 2019); $200,000 (year 2020). The company uses the gross method for recognizing government grants. Assume all cash payments were made by Wind Town Corporation. Required: Prepare the journal entries for the above transactions in year 2018. ACCT 3310 Intermediate Accounting Final PRACTICE (Summer 2020) Question 2 - Govt Grant Wind Town Corporation is a builder of wind turbines that are used in electricity generation in Northern Ontario. To encourage the installation of wind turbines and the development of wind power technology, the provincial government has several programs in place that support the industry. In 2018, Wind Town incurred the following costs that were potentially eligible for government subsidies: a. The company spent $10 million on research and development (R\&D); these costs are eligible for a 25% tax credit. The $10 million had been previously expensed. b. Wind Town is eligible for a full tax rebate on sales tax normally levied on materials used in the construction of its turbine factory. This sales tax amounted to 5% of the materials cost of $35 million. c. Other than materials cost of $35 million incurred in constructing the turbine factory, the company also incurred the following costs: $500,000 architect and survey fees; $2 million direct labour during construction; $600,000 paid for land including removal of old building. The life of the turbine factory is 20 years, with a salvage value of $2 million. The company uses the straight-line method for recording depreciation. The building was completed by end of the year 2018. d. The government will provide the company an additional $200,000 in 3 years if it maintains an average of 100 workers per year in Northern Ontario. During the first year start-up phase 2018 , the company only employs 10 workers in Northern Ontario. e. The government will provide a grant of $90,000 for site clean up which the company will incur over the next three years: $50,000 (year 2018); $150,000 (year 2019); $200,000 (year 2020). The company uses the gross method for recognizing government grants. Assume all cash payments were made by Wind Town Corporation. Required: Prepare the journal entries for the above transactions in year 2018