Question
Aden Motels Inc. owns a motel that it had purchased on January 1, 2014 for $1.5 Million cash and is accounted for in a separate
Aden Motels Inc. owns a motel that it had purchased on January 1, 2014 for $1.5 Million cash and is accounted for in a separate account, classified as "Structures." The company is using the revaluation model to account for its structures and revalues them every three years. Aden uses straight-line depreciation over the asset's 15-year useful life with no residual value.
The asset's fair values were as follows:
Dec 31, 2016: $1,450,000.
Instructions
a) Assuming Aden uses the asset adjustment (elimination) method for revaluation, prepare all required journal entries for 2014, 2015, 2016 and 2017.
b) Assume instead that the value of the structure was $1,000,000 at the end of 2016 and there is a credit balance of 150,000 in the revaluation surplus account, record the journal entry for the revaluation and the 2017 depreciation. What happens if the structure increases in value at the next revaluation date?
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