Question

Barton Enterprises purchased equipment on January 1, 2020, at a cost of €350,000. Barton uses the straight‐line depreciation method, a 5‐year estimated useful life, and no residual value. At the end of 2020, independent appraisers determined that the assets have a fair value of €320,000.

Instructions

a. Prepare the journal entry to record 2020 depreciation using the straight‐line method.

b. Prepare the journal entry to record the revaluation of the equipment.

c. Prepare the journal entry to record 2021 depreciation, assuming no additional revaluation.

additional instructions:

4. Prepare the closing journal entries for a. and b.
5. Suppose that at the end of 2021, after the depreciation is recorded per c., the equipment is re-valued to €180,000. Prepare the journal entry to record the revaluation. Then prepare the closing entries required at the end of 2021.
6. Prepare the depreciation entries for 2020 and 2021, assuming the Cost Model was followed in both years.
7. Assume that the equipment is sold on 1 July 2022 for €170,000.
   1. Calculate depreciation for 2022 under both the cost and fair value models. (Hint: Depreciate only up to the date of disposal.)
   2. Prepare the journal entry for the disposal under the cost model.
   3. Prepare the journal entry for the disposal under the fair value model. Do not revalue the equipment on 1 July 2022 (prior to the disposal).
8. In total (for 2020, 2021, and 2022 taken together), which model resulted in the greatest decrease to total comprehensive income?

Answer 1

Revaluation model	Debit	Credit		Cost model	Debit	Credit
a. Journal entry to record 2020 depreciation using the straight‐line method				a. Journal entry to record 2020 depreciation using the straight‐line method
Depreciation expense	70000			Depreciation expense	70000
Accumulated depreciation		70000		Accumulated depreciation		70000
(350000/5)				(350000/5)
Closing journal entry for a.				Closing journal entry for a.
Income Summary	70000			Income Summary	70000
Depreciation expense		70000		Depreciation expense		70000
b.Journal entry to record the revaluation of the equipment at end of 2020				b.Journal entry to record the revaluation of the equipment at end of 2020
Accumulated depreciation	70000			NO Journal Entry
Equipment	320000
Equipment		350000
Revaluation surplus		40000
Closing journal entry for b.				Closing journal entry for b.
Revaluation surplus	40000			NOT APPLICABLE
Other Comprehensive income(under Equity)		40000
c.Journal entry to record 2021 depreciation, assuming no additional revaluation.				c.Journal entry to record 2021 depreciation, assuming no additional revaluation.
Depreciation expense	80000			Depreciation expense	70000
Accumulated depreciation		80000		Accumulated depreciation		70000
(320000/4)
Accumulated depreciation	80000
Equipment	180000			NOT APPLICABLE
OCI	40000
Revaluation loss	20000
Equipment		320000
Closing journal entry for 2021 depn.				Closing journal entry for 2021 depn.
Income Summary	80000			Income Summary	70000
Depreciation expense		80000		Depreciation expense		70000
Closing journal entry for 2021 revaluation loss				Closing journal entry for 2021 revaluation loss
OCI	20000			NOT APPLICABLE
Revaluation loss		20000
For sale of eqpt. On july 1, 2022				For sale of eqpt. On july 1, 2022
Depreciation expense	30000			Depreciation expense	35000
Accumulated depreciation		30000		Accumulated depreciation		35000
(180000/3/2)--depm. For 6 mths.in 2022				(70000/2)--depm. For 6 mths.in 2022
Cash	170000			Cash	170000
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