Exercise 10-21 Sheridan Equipment Ltd. wanted to expand into New Brunswick and was impressed by the provincial government's grant program for new industry. Once it was sure that it would qualify for the grant program, it purchased property in downtown Saint John on June 15, 2020. The property cost $239,000 and Sheridan spent the next two months gutting the building and reconstructing the two floors to meet the company's needs. The building has a useful life of 20 years and an estimated residual value of $65,800. In late August 2020, the company moved into the building and began operations. Additional information follows: 1. The property was assessed at $200,000, with $156,000 allocated to the land. 2. Architectural drawings and engineering fees related to the construction cost $18,000. 3. The company paid $17,700 to the contractor for gutting the building and $108,000 for construction. Sheridan expects that these improvements will last for the remainder of the life of the building. 4. The provincial government contributed $73,500 toward the building costs. Assuming that the company uses the cost reduction method to account for government assistance, answer the following: (Do not round intermediate calculations. Round final answers to o decimal places, e.g. 5,275.) 1. What is the cost of the building on Sheridan Equipment's statement of financial position at August 31, 2020, its fiscal year end? Cost of buildings 2. What is the effect of this capital asset on the company's income statement for the company's year ended August 31, 2021? Net effect on income statements Assuming the company uses the deferral method to account for government assistance, answer the following: (Do not round intermediate calculations. Round final answers to 0 decimal places, e.g. 5,275.) 1. What is the cost of the building on Sheridan Equipment's statement of financial position at August 31, 2020? Cost of buildings 2. What is the effect of this capital asset on the company's income statement for the company's year ended August 31, 2021? Net effect on income statement Compare the statement of financial position and income statement presentations for the two alternative treatments for government assistance for the fiscal year ended August 31, 2021. (Do not round intermediate calculations. Round final answers to o decimal places, e.g. 5,275. List Operating Expenses before Other revenue.) Cost Reduction Method: Sheridan Equipment Ltd. (Partial) Statement of Financial Position August 31, 2021 Property, plant and Equipment Buildings Less Accumulated Depreciation Sheridan Equipment Ltd. (Partial) Income Statement For the Year Ended August 31, 2021 Operating Expenses Depreciation Expense $ Deferral Method: Sheridan Equipment Ltd. (Partial) Statement of Financial Position August 31, 2021 Property, Plant and Equipment Buildings Less : Accumulated Depreciation Deferred Revenue - Government Grant Sheridan Equipment Ltd. (Partial) Income Statement For the Year Ended August 31, 2021 A Operating Expenses : Depreciation Expense Other Revenues : Revenue - Government Grants
