Reference no: EM132681215
Question - Sheridan Corporation owns and manages a small 10-store shopping centre, which it classifies as an investment property. Sheridan has a May 31 year end and initially recognized the property at its acquisition cost of $11.2 million on June 2, 2019. The acquisition cost consisted of the purchase price of $10.5 million, costs to survey and transfer the property of $460,000, and legal fees to acquire the property of $240,000. Sheridan determines that approximately 26% of the shopping centre's value is attributable to the land, with the remainder attributable to the building. The following fair values are determined:
Date - Fair Value
May 31, 2020 - $10,700,000
May 31, 2021 - $10,594,000
May 31, 2022 - $11,208,000
Sheridan expects the shopping centre building to have a 35-year useful life and a residual value of $1.428 million. Sheridan uses the straight-line method for depreciation.
Required -
1. Assume that Sheridan decides to apply the cost model. What journal entries, if any, are required each year?
2. Assume that Sheridan decides to apply the fair value model. Prepare the journal entries, if any, required at each year end.