Accounting entry - Government grant for purchase of tractor

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#1
Wiles  
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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?
 

#2
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#3
Wiles  
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Yes. Thank you. For tax purposes, reduce asset basis. Makes sense.

I also found the same treatment is allowable for GAAP purposes.

All good news for the client. They wanted to avoid adding a liability to the balance sheet.
 

#4
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Can you do a 1031 on a tractor these days?

As an aside does Spell Czech wish to comment on the line above the Legislative Counsel's Digest, reproduced below for ease of reference?

An act to add Sections 17131.8 and 24318 to and repeal Sections 17131.11 and 24311 of the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.
 

#5
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Let the reader beware. You know what they meant, and I know what they meant, but that leaves a few million who might not. 8-)
 


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