Novak Enterprises purchased a new piece of equipment for its factory under a new government incentive program in exchange for cash. The equipment cost $150,000 and had an estimated useful life of ten years. The program was intended to encourage companies to invest in new, innovative technologies. The new piece of equipment purchased by Novak qualified for a government grant of $22,500. Novak collected the grant after providing proof of the purchase.

a. Assuming that Novak uses the cost reduction method, prepare the journal entries to record the purchase of the equipment and the receipt of the government grant. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. List all debit entries before credit entries.)

b. Assuming that Pina uses the deferral method, prepare the journal entries to record the purchase of the equipment, the receipt of the grant, and the adjusting entry required at the end of the first year (assuming the equipment was purchased on the first day of the fiscal year). (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.)

Account Titles and Explanation Debit Credit (To record purchase of equipment) (To record collection of government grant) Account Titles and Explanation Debit Credit (To record the purchase of the equipment.) (To record the receipt of the government grant.) (To record the year end adjustment.)