QUESTION:

On January 1, 2022, a company purchased a machine for $100,000. The machine has an estimated useful life of 10 years and no residual value. The company uses straight-line depreciation. On December 31, 2022, the company revalued the machine and determined that its fair value was $110,000. Prepare the necessary journal entry to record the revaluation of the machine on December 31, 2022.

Answer: Accumulated depreciation (asset) $10,000 Revaluation surplus (equity) $10,000 To record the revaluation of the machine on December 31, 2022.

The journal entry to record the revaluation of the machine on December 31, 2022, would be:

Debit the Accumulated depreciation (asset) account for $10,000 to reduce the carrying amount of the machine to its revalued amount of $110,000.

Credit the Revaluation surplus (equity) account for $10,000 to recognize the increase in the fair value of the machine as a component of equity.