Reference no: EM132037680

Question 1 - Hilton Warehousing Inc. owns a warehouse that it had purchased on January 1, 2014 for $3 Million cash and is accounted for in a separate account, classified as "warehouse." The company is using the revaluation model to account for the warehouse and revalues it every three years. Hilton uses straight-line depreciation over the asset's 30-year useful life with no residual value.

The asset's fair values were as follows: Dec 31, 2016: $2,900,000.

Instructions

a. Assuming Hilton uses the asset adjustment (elimination) method for revaluation, prepare all required journal entries for 2014, 2015, 2016 and 2017.

b. Assume instead that the value of the warehouse was $2,000,000 at the end of 2016 and there is a credit balance of 300,000 in the revaluation surplus account, record the journal entry for the revaluation and the 2017 depreciation. What happens if the warehouse increases in value at the next revaluation date?

Question 2 - Nonmonetary exchange

Athens Inc. exchanged machinery with an appraised value of $1,170,000, a recorded cost of $1,800,000 and accumulated depreciation of $900,000, for machinery that Sparta Corp. owns. Sparta's machinery has an appraised value of $1,140,000, a recorded cost of $2,160,000, and accumulated depreciation of $1,188,000. Sparta also gave Athens $30,000 in the exchange. Assume depreciation has been updated to the date of exchange.

Instructions

a) Prepare the entries on both companies' books assuming that the transaction has commercial substance.

b) Prepare the entries on both companies' books assuming that the transaction lacks commercial substance.