Melissa Limited decided to use the revaluation model for an equipment which was purchased on January 1, 2017. The company will revalue the equipment annually since the equipment's fair value changes every year. The equipment cost $200,000 and the company determined that the new equipment had a five-year useful life with zero residual value. Melissa Limited applies the straight-line depreciation and full-year convention for all its equipment. The company uses Elimination Method for the revaluation model and the fair value of the machine was $175,000 as of December 31, 2017, and $111,250 as of December 31, 2018.

 

Required:

1-Prepare the journal entries for the years 2017 and 2018.

 

2-Can Melissa Limited elect to use Fair Value Model for the equipment? What type of assets can be valued using "Fair Value Model"?