Reference no: EM132562608

Question - MCQ Properties purchased a building on December 30, 2018 with the intention of leasing the property. The property was purchased for P5,000,000 cash and has an estimated remaining life of 10 years on the date of purchase. Aside from the amount paid to the seller, the company also paid finder's fee and commission amounting to P100,000 which was recorded as expense by Ana de Armas, the company's accountant. The building was later leased under an operating lease agreement beginning February 28, 2019 to Hope Pool Industries. The lease agreement provides for monthly rent amounting to P75,000.

Because of the improving business climate in the district where the building is located, the building was appraised at P5,500,000 on December 31, 2019. The company uses the cost model and straight-line method of depreciation to measure all of its real properties including investment properties. Ana de Armas prepared an entry to record depreciation on December 31, 2019 based on his records.

Required -

1. What is the carrying value of the building on December 31, 2019?

2. Assuming the books for 2020 are still open, what is the adjusting entry, if any, on December 31, 2019?