Use the following information to solve the following questions:
Egypt Corp. owns equipment that originally cost $ 100,000. At December 31, 2020, the equipment's book value (after 2020 depreciation was booked) is $ 60,000. It is determined that the fair value of the equipment at this date is $ 90,000. Although Egypt's policy is to apply the revaluation model using the proportionate method, this is the first time the company has done it.
-By how much must the accumulated depreciation account be increased (decreased) at December 31, 2020?
A) $ 20,000
B) $ 40,000
C) $ 60,000
D) $ (60,000)

Question

Quizplus · Accepted Answer

The proportionate method of revaluation is used to increase (or decrease) the carrying amount of an asset to its fair value. The increase (or decrease) is recognized in the income statement over the remaining useful life of the asset. In this case, the equipment's book value is $60,000 and its fair value is $90,000. The increase in the carrying amount is $30,000 ($90,000 - $60,000). This increase is recognized in the income statement over the remaining useful life of the equipment, which is not provided in the question. However, the question asks for the amount by which the accumulated depreciation account must be increased (decreased). The accumulated depreciation account is increased by the amount of the increase in the carrying amount, which is $30,000.

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