ABC Inc. is a public entity which applies the Fair Value Model to all of its Investment property. On January 1, Year 1, the company purchased Land held for resale for $120,000. This land was independently appraised at $100,000 on December 31^st, Year 1. The year-end adjusting journal entry would include:

Question

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Since the land held for resale was independently appraised at $100,000 on December 31, Year 1, and ABC Inc. purchased it for $120,000 on January 1, Year 1, there is an impairment loss of $20,000 (120,000 - 100,000) that ABC Inc. needs to recognize in its year-end adjusting entry. Therefore, the correct choice is A, a loss of $20,000. There is no need for a revaluation surplus entry since the fair value is below the cost, and there is no depreciation expense for investment property under the Fair Value model. Additionally, there is no contributed surplus related to this scenario.

ABC Inc Is a Public Entity Which Applies the Fair Value