To encourage both economic development and environmental sustainability, State No. 1 has offered grants of up to $10 million to any company in its jurisdiction that invests in equipment used in the manufacture of solar panels. Per the terms of the grant, the state will match 50 percent of the cost of acquiring or constructing specified types of capital assets. Total cost annual of the program is estimated to be $200 million.
State No. 2 also encourages economic development and environmental sustainability. It does so by offering tax breaks to companies that invest in equipment used in the manufacture of solar panels. Per the terms of its tax code, the state grants a tax credit (i.e., a direct reduction of tax liability) equal to 50 percent of the cost of acquiring or constructing specified types of capital assets. Total estimated amount of annual revenue lost is $200 million per year.

Questions

In their government‐wide statements, how much would each state report as an expense for economic development or environmental sustainability?

 What would be the difference in how much each would report as tax revenue? In economic substance, are the programs of the two states substantively different?

What measures, if any, would you propose the GASB adopt to ensure that financial statement users are not misled into believing that State No. 1 invests more in economic development and environmental sustainability than State No. 2.

Answer rating: 100% (QA)

In their governmentwide statements State No 1 would report 200 million as an expense for economic development or environmental sustainability This rep... View the full answer