Question

Aden Motels Inc. owns a motel that it had purchased on January 1, 2020, 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 at the end of 2021 only. Aden uses straight-line depreciation over the asset's 15-year useful life with no residual value.

The asset's fair value was equal to its book value on Dec. 31, 2020, and was $ 1,450,000 on Dec. 31, 2021.

Instructions

Assuming Aden uses the asset adjustment (elimination) method for revaluation, prepare all required journal entries for 2020 and 2021.

Answer 1

Date	Account Title & Explanation	Debit	Credit
Jan 01.2020	Structures	$1500000
	Cash		$1500000
	(To record acquisition of Structures)
Dec 31.2020	Depreciation Expense	$100000
	Accumulated Depreciation		$100000
	(To record Depreciation Expense i.e. $1500000 / 15 Years = $100000)
Dec 31.2021	Depreciation Expense	$100000
	Accumulated Depreciation		$100000
	(To record Depreciation Expense prior to revaluation)
Dec 31.2021	Accumulated Depreciation	$200000
	Structures		$200000
	(To Adjust the book value of Structures)
Dec 31.2021	Structures	$150000
	Revaluation Adjustment		$150000
	(To record the gain on book value of Structures i.e. $1450000 - $1300000)