Question

 

On December 31, 20x0, the Tyra Corporation purchased two office buildings. Tyra decided to use the revaluation model for the buildings. Data for the two buildings is as follows:

Building 1 Building 2

Original cost $11,000,000 $8,000,000

December 31, 20x2 Fair Value 11,200,000 7,350,000

December 31, 20x4 Fair Value 10,600,000 7,250,000

December 31, 20x6 Fair Value 10,400,000 6,900,000

The useful life of each building is 40 years with no residual value.

On June 30, 20x7, Building 2 is sold for $6,850,000.

Required –

a) Write all journal entries for Building 1 from Dec 31, 20x0 to December 31, 20x6.

b) Write all journal entries for Building 2 from Dec 31, 20x0 to June 30, 20x7.

Answer 1

Solution(a)

31 Dec. 20x0     Building 1 Account Dr. 11000000

To Bank Account 11000000

( Building 1 purchased and paid )

31 Dec. 20x2 Building 1 Account Dr. 200000

To Revaluation Reserve Account 200000

(building Revalued)

31 Dec. 20x4 Revaluation Reserve Account Dr. 9480000

To Building 1 Account 9480000

   (building Revalued)

31 Dec. 20x6      Revaluation Reserve Account Dr.    200000

To Building 1 Account 200000

   (building Revalued)

Solution(b)

31 Dec. 20x0     Building 2 Account Dr. 8000000

To Bank Account 8000000

( Building 2 purchased and paid )

31 Dec. 20x2 Revaluation Reserve Account Dr.    650000

To Building 2 Account 650000

(building Revalued)

31 Dec. 20x4 Revaluation Reserve Account Dr. 100000

To Building 2 Account 100000

   (building Revalued)

31 Dec. 20x6      Revaluation Reserve Account Dr. 350000

To Building 1 Account 350000

   (building Revalued)

30 June 20x7 Bank Account Dr 6850000

To Building 2 Account 6850000

( Building 2 sold for cash )

NOTES TO THE ACCOUNTS-

1. It is assumed that buildings are sold and purchased in cash due to lack of information.

2. It is assumed that the revalued value of building 2 is the same as sell value on the date of sale. So there will be no profit-no loss in the books.