Additional Problem 13 On January 1, 2016, Carla Corporation acquires a building

Question

Additional Problem 13 On January 1, 2016, Carla Corporation acquires a building at a cost of $450,000. The building is expected to have a 30-year life and no residual value. The asset is accounted for using the proportionate revaluation method and revaluation is carried out every two years. On December 31, 2017, the fair value of the building is appraised at $445,000 and on December 31, 2019 its fair value is $400,000. Prepare the appropriate journal entries for December 31, 2017 and December 31, 2019. Assume depreciation has been recorded. (Do not round intermediate calculations. Round final answers to 0 decimal places e.g. 5,275. 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 0 for the amounts.) Date Account Titles and Explanation Debit Credit Dec. 31/17 Dec. 31/19

Explanation / Answer

Journal entry on 12/31/2017

Building accumulated depreciation a/c.

To Building a/c

To Revaluation surplus a/c

$30,000

$5,000

$25,000

Calculation of accumulated depreciation :

Depreciation under Straight line method for the year 2016 = $450,000 ÷ 30 years = $15,000

Depreciation under Straight line method for the year 2017 = $15,000

Total accumulated depreciation at the end of year 2017 i.e 12/31/2017    = $30,000

Calculation of revalution gain/(loss):

a. Fair market value on 12/31/2017 = $445,000

b. Net book value on 12/31/2017 = $450,000 - $30,000 = $420,000

c. Revalutation surplus (a-b) = $25,000

Calculation of amount of increase/decrease in building's value:

a. cost of the building = $450,000.

b. FMV of the building = $445,000

c. Decrease in building's value = $5,000

Journal entry on 31/12/2019

Revaluation loss a/c

Building accumulated depreciation a/c.

To Building a/c

$13,214

$31,786

$45,000

Calculation of accumulated depreciation :

Depreciation under Straight line method for the year 2018 = $445,000 ÷ 28 years = $15,892.86

Depreciation under Straight line method for the year 2019 = $15,892.86

Total accumulated depreciation at the end of year 2019 i.e 12/31/2019 = $31,785.72

Calculation of revalution gain/(loss):

a. Fair market value on 12/31/2019 = $400,000

b. Net book value on 12/31/2019 = $445,000 - $31,785.72 = $413,214.28

c. Revalutation Loss = ($13,214.28)

Calculation of amount of increase/decrease in building's value:

a. cost of the building on 12/31/2019 = $445,000

b. FMV of the building on 12/31/2019 = $400,000

c. Decrease in building's value = $45,000

Hope this is useful and thank you!!!!!!!

Date General Journal Debit Credit Dec 31/2017

Building accumulated depreciation a/c.

To Building a/c

To Revaluation surplus a/c

$30,000

$5,000

$25,000

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