Revaluation Model (Proportionate Method)

question 76

Essay

Revaluation model (proportionate method)
Aden Motels Inc. owns a motel that it had purchased on January 1, 2020, for $ 1.5 million cash and is accounted for in a separate account, classified as "Structures." The company is using the revaluation model to account for its structures and revalues them annually. Aden uses straight-line depreciation over the asset's 15-year useful life with no residual value.
The asset's fair value was equal to its book value on Dec. 31, 2020, and was $ 1,450,000 on Dec. 31, 2021.
Instructions
Assuming Aden uses the proportionate method to adjust for revaluation, prepare all required journal entries for 2020 and 2021.

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Definitions:

Lower Control Limit

A threshold value in statistical process control below which a process is considered to be out of control on the lower side.

Rational Subgroups

Groupings within a data set that are formed based on logical or natural relationships, often used in quality control to evaluate variation within and between these groups.

Item-To-Item Variation

The variability in characteristics or attributes between individual items within a batch or sample.

Special Causes

Variations in a process that are caused by specific, identifiable factors, distinguishing them from random, common causes of variation.