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Simpson Company applies revaluation accounting to plant assets with a carrying value of $800,000, a useful life of 4 years, and no salvage value.Depreciation is calculated on the straight-line basis.At the end of year 1, independent appraisers determine that the asset has a fair value of $750,000.
-The journal entry to adjust the plant assets to fair value and record revaluation surplus in year one will include a

Question

Quizplus · Accepted Answer

When revaluing an asset, the journal entry includes a credit to plant assets to increase the carrying value to fair value, and a credit to revaluation surplus for the increase in value. There is no debit to accumulated depreciation because that account is not adjusted when revaluing an asset. Depreciation is still calculated on the straight-line basis using the new carrying value of the asset, but there is no credit or debit to depreciation expense when adjusting the carrying value. Therefore, the correct answer is D - credit to Revaluation Surplus for $150,000.

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