Farmer is participating in the Carl Moyer government grant program. They will be turning in an old tractor and receiving a new tractor. The new tractor is valued at $300K. Farmer pays 20%, the government (you the taxpayer) pays 80%
As part of this program, they need to keep the tractor in service for 5 years and put at least 5,000 hours of use on it. If they don’t then the farmer has to payback a prorated amount of the $240K.
What is the accounting entry for the original acquisition? What are the entries over the 5-year period, assuming 1,000 hours of use each year.
I am assuming the $300K is debited to asset. I just don't know what the $240K is. I assume a liability. Do we call it 'deferred revenue'?
Tax question - How is the grant treated for tax purposes? Income or reduction of basis? Can we use 1031 and call $240K the sales price for the old tractor?