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.
-The adjusting entry to record the revaluation will include a
A) debit to Accumulated Depreciation of $ 20,000.
B) credit to Equipment of $ 10,000.
C) credit to Revaluation Surplus (OCI) of $ 30,000.
D) debit to Revaluation Surplus (OCI) of $ 10,000.

Question

Quizplus · Accepted Answer

The revaluation model using the proportionate method requires the following steps:
1. Determine the fair value of the asset.
2. Compare the fair value to the book value.
3. If the fair value exceeds the book value, record the difference as a credit to Revaluation Surplus (OCI) and increase the carrying amount of the asset.
Therefore, in this case, the adjusting entry should include crediting Revaluation Surplus (OCI) for the difference between fair value and book value, which is $30,000. There is no need to debit Accumulated Depreciation, as it does not change with the revaluation. Equipment should not be credited, as it is a fixed asset and should not be increased by the revaluation.

Use the Following Information to Solve the Following Questions