ACC 2010 Intermediate Accounting – Assets

Sample Questions for Final Exam

QUESTION ONE

For each of the following questions, select the best response.

1. Accounting information is considered to be relevant when it

A) can be depended on to represent the economic conditions and events that it is intended to
represent.
B) is capable of making a difference to a decision-maker.
C) is understandable by reasonably informed users of accounting information.
D) is verifiable and neutral.

2. Which transaction would be included in the year end inventory?

A) Goods received on consignment at year end.
B) Goods shipped out on consignment at year end.
C) Goods shipped out F.O.B. shipping point at year end.
D) Goods received after year end, shipped FOB destination

3. During the current period, the company became aware of an error in the previous year’s inventory
count that resulted in an overstatement of net income for that year. The amount of this
overstatement should be reported in the current year financial statements as a(n):
A) reduction to opening retained earnings.
B) item in Other Comprehensive Income.
C) expense or loss of the current period.
D) None of the above.

4. Punk Construction Corp. has consistently used the percentage-of-completion method. In 2017,
Punk started work on a $7,000,000 construction contract that was completed in 2018. The
following information was taken from Cymbal’s 2017 accounting records:

Billings to date............................................ $2,200,000

Costs incurred............................................. 2,100,000
Collections to date...................................... 1,400,000
Estimated costs to complete........................ 4,200,000

Under the earnings approach, what amount of gross profit should Cymbal recognize in 2017 on
this contract?

A. $700,000
B. $466,667
C. $350,000
D. $233,3336.
 Page 2 of 19

5. Accrued expenses
A) are current assets.
B) are expenses incurred but not yet paid.
C) are items such as the prepayment of rent on an office.
D) involve a shorter period of time than do prepaid expenses.
E) involve a longer period of time than do prepaid expenses.

6. The following item is found on the income statement of a corporation: Gain from sale of
equipment, $5,000. The equipment sold during the year originally cost $20,000, had accumulated
depreciation of $16,000 and was sold for cash. The statement of cash flows should show an inflow
of cash from investing activities of:
A) $1,000
B) $4,000
C) $5,000
D) $9,000

7. A corporation paid $4,000 cash for rent. This payment should be reflected on the cash flow
statement as a:
A) cash inflow from operating activities.
B) cash outflow from operating activities.
C) cash outflow from investing activities.
D) cash outflow from financing activities.

8. In accounting, the term "revenue recognition" refers to:

A) Measuring the expense related to the revenue for a specific period.
B) Identifying sources of revenue.
C) Identifying transactions that result in an inflow of cash from customers.
D) Identifying the period when the customer first indicates the need for a good or service.
E) Identifying transactions that should be recorded as revenue in the current reporting period.

9. When work to be done and costs to be incurred on a long-term contract cannot be reliably
estimated, which of the following methods of revenue recognition is preferable for private firms?
A) Percentage-of-completion method
B) Completed contract method
C) Point-of-sale method
D) Installment sales method

10. Which of the following statements concerning the estimation of bad debt expense by using a
percentage of credit sales is incorrect?
A) Produces the same results as an aging of accounts receivable.
B) Causes an adjustment to the allowance account without regard to the balance in that
account immediately prior to the adjustment.
C) Is based primarily on the expense recognition principle.
D) Emphasizes the income statement.
E) Only incidentally measures accounts receivable at net realizable value
 Page 3 of 19

11. Computing bad debt expense by estimating the net realizable value of accounts receivable (aging
approach):
A) Emphasizes the income statement rather than the balance sheet.
B) Causes an adjustment to the allowance account, which produces a balance in the account
equal to the total estimated uncollectible amount.
C) Produces a bad debt expense amount that is close to uncollectible current credit sales.
D) Is based primarily on the historic cost principle.

12. Grover Inc wishes to use the revaluation model for this property:

Before Revaluation
Building Gross Value 120,000
Building Accumulated Depreciation 40,000
Net carrying value 80,000

The fair value for the property is $100,000. What amount would be booked to the "accumulated
depreciation" account if Grover chooses to use the proportional method to record the revaluation?
A) $0
B) $10,000 debit
C) $10,000 credit
D) $20,000 credit

13. When determining the unit cost of an inventory item, which of the following should generally not
be included?
A) Interest on loans obtained to purchase the item
B) Commissions paid when purchased
C) Freight costs on the item when purchased
D) Sales taxes paid when the item was purchased

14. In which of the following inventory costing methods will the oldest inventory costs
incurred rarely have an effect on the current ending inventory valuation?
A) FIFO
B) LIFO
C) Average cost/perpetual inventory system
D) Average cost/periodic inventory system

15. JP Corporation had net income of $1,000,000 for 2011. After issuing its financial statements, it
realized that it had failed to include inventory from one of its small warehouses for several years.
Specifically, it forgot to include $20,000 on December 31, 2010, and $30,000 on December 31,
2011. Which of the following is true regarding JPs 2011 net income?
A) Net income was understated by $10,000.
B) Net income was overstated by $10,000.
C) Net income was understated by $30,000.
D) Net income was overstated by $30,000.
 Page 4 of 19

16. On February 1, 2017, Strawberry Corp. factored receivables with a carrying amount of $250,000
to Shortcake Inc. Shortcake assessed a finance charge of 3% of the receivables and retained 5% of
the receivables. Relative to this transaction, you are to determine the amount of loss on sale to be
reported in the income statement of Strawberry Corp. for February. Assume that Strawberry
factors the receivables on a with recourse basis. The recourse obligation has a fair value of
$1,000. The loss to be reported is
A) $17,000.
B) $7,000.
C) $8,500.
D) $1,000.

17. Which amortization method is particularly appropriate where: (a) obsolescence is not the primary
factor, (b) actual use can be accounted for, and (c) the service life in units of use can be estimated
reliably?
A) Double-declining balance
B) Straight-line
C) Units of production
D) All three methods are appropriate

18. Which of the following is correct with respect to "investment properties"?

A) These are land or buildings used for production or administrative purposes of the business.
B) These are land, buildings or machinery used for production or administrative purposes of the
business.
C) These are land or buildings used for rental income purposes of the business.
D) These are land, buildings or machinery used for rental income purposes of the business.

19. TX signed a 5-year lease on a tract of vacant land owned by UT. TX immediately constructed a
metal building on the land at a cost of $120,000 (estimated life 10 years and a 20 percent residual
value). There was no lease provision for removal of the building by TX. Assuming straight-line
amortization, the annual amortization expense recorded by TX would be:
A) $ 9,600
B) $12,000
C) $19,200
D) $24,000
 Page 5 of 19

20. Which of the following is the correct statement concerning accounting for investments in
securities designated as FV-NI investment?
A) The net effect of all market value changes in trading investments is reported in income
along with realized changes
B) Unrealized market value changes only are reported in earnings
C) Realized changes are reported at market value
D) The total effect on income for a period for investments equals dividends received plus
interest accrued

21. Which of the following is the most likely to be classified as a current asset?
A) Investment in FV-NI securities
B) Investment in land
C) Investment in common shares for which the holder has significant influence
D) Investment in held-to-maturity bonds

22. If Thunder Bay acquired a 20% interest in Fort William on December 31, 2017 for $45,000, and
during 2018 Fort William reported net income of $25,000 and paid a total cash dividend of
$10,000, applying the equity method would give a debit balance in the Investment in Fort William
Corp. account at the end of 2018 of
A) $37,000.
B) $45,000.
C) $48,000.
D) $50,000.

23. What costs should not be capitalized to "building"?

A) Demolition of old structures
B) Engineering surveys
C) Interest during construction
D) Construction permits

24. Centennial owns a machine that it purchased on Jan 1, 2010 for $400,000. The machine had an
estimated useful life of 10 years with a production capacity for 80,000 units and was expected to
have no residual value. The company uses the units-of-production method to record depreciation.
The machine produced 15,000 units in 2010, 18,000 units in 2011 and 25,000 units in 2012. The
machine was sold on December 30, 2012 for $350,000. What was the accumulated depreciation at
December 31, 2010?
A) $39,000
B) $40,000
C) $75,000
D) $90,000

25. FeelGood Corp. purchased equipment on January 1, 2011 for $275,000. It was estimated that the
equipment would have a residual value of $25,000 at the end of its useful life. The asset's useful
life was estimated at 5 years or 10,000 units of output. The company has a December 31 year end.
Assuming the double-declining-balance depreciation method is used, what is the net book value
(carrying value) of the asset on December 31, 2012?
A) $66,000
B) $99,000
C) $110,000
D) $165,000
 Page 6 of 19

26. Using the following cost information regarding finished goods, what would be the ending value of
the finished goods inventory if the market value of the goods is $200,000?

Cost
Materials $150,000
Costs to process into finished product 100,000

A) $0
B) $150,000
C) $200,000
D) $250,000

27. Which of the following is correct with respect to the "fair value model"?
A) A model that recognizes changes in value of the asset in the statement of changes in equity.
B) A model that recognizes changes in value of the asset in the revaluation surplus account.
C) A model that recognizes changes in value of the asset in other comprehensive income.
D) A model that recognizes changes in value of the asset in profit or loss.

28. Which of the following statements is most likely to be incorrect?

A) Internal patent development costs should be capitalized
B) Registration fees for a patent should be capitalized
C) The purchase of the exclusive right to use a trademark should be capitalized
D) Registration fees for a trademark should be capitalized

29. Costs incurred by a company that may develop its own goodwill internally should be:
A) capitalized and amortized as the company profits increased.
B) capitalized and tested periodically for impairment.
C) expensed when incurred as a current operating expense.
D) capitalized and amortized over a period not to exceed 40 years

Solution

Q Answer Explanation
1 B
2 B
3 A
4 D $2,100,000
—————– × ($7,000,000 – $6,300,000) = $233,333
$6,300,000
5 B
6 D
7 B
8 E
 Page 7 of 19

9 B
10 A
11 B
12 C (100 - 80) /80 = 25%; 40,000 × 25% = 10,000
13 A
14 A
15 A
16 C [($250,000 × .03) + $1,000 = $8,500
17 C
18 C
19 D (the useful life of the building to the company is 5 years
because it is a 5-year lease)
20 A
21 A
22 C [$45,000 + ($25,000 x.2) – ($10,000 x.2) = $48,000]
23 A
24 C ($400,000/80,000 = $5/unit; 2010 = 5 × 15,000 units = 75,000
= Accumulated depreciation)
25 B (DDB rate 2/5 = 40%; 2011 deprec. 275,000 × 40% =
110,000; 2012 deprec. (275,000 – 110,000) × 40% = 66,000;
NBV @ 12/31/12 = 275,000 – 110,000 – 66,000 = 99,000)
26 C (200,000 = LOCM value)
27 D
28 A
29 C

QUESTION TWO

The inventory records of ZUP indicate the following regarding its best-selling product for the
month of January:

Units Unit cost

Opening inventory 6,000 $4.00
Purchase 1 4,000 3.70
Sale 1 (3,600)
Purchase 2 8,000 2.80
Sale 2 (5,000)
Ending inventory 9,400

Required:
Calculate the dollar amount of ending inventory and cost of goods sold under each of the
following cost flow assumptions:
a. Weighted-average cost, periodic inventory.
 Page 8 of 19

b. First-in, first-out (FIFO), perpetual inventory.

c. Weighted-average cost, perpetual inventory.

Solution
a.
WAC per unit = COGAS / units available for sale
=(6,000x4+4,000x3.7+8,000x2.8),(6,000+4,000+8,000)= 61,200 / 18,000 = 3.40
Ending Inventory =WAC per unit × ending units = 3.40 × 9,400 = 31,960
COGS = COGAS - EI = 61,200 - 31,960 = 29,240
b.

Cost of goods sold = 61,200 – 27,580 = 33,620

c.

Cost of goods sold = 61,200 - 30,832 = 30,368

QUESTION THREE

Part 1
As a result of its annual inventory count, Tarweed Corp. determined its ending inventory at cost
and at lower of cost and net realizable value at December 31, 2019, and December 31, 2020.
December 31, 2019, was Tarweed's first year end. This information is as follows

Cost Lower of Cost and NRV

Dec. 31, 2019 $321,000 $283,250
Dec. 31, 2020 385,000 351,250  

Required:
a. Prepare the journal entries required at December 31, 2019 and 2020, assuming that the
inventory is recorded directly at the lower of cost and net realizable value and a periodic
inventory system is used.
 Page 9 of 19

b. Prepare the journal entries required at December 31, 2019 and 2020, assuming that the
inventory is recorded at cost and an allowance account is adjusted at each year end under
a periodic system.

Solution:

a) 12/31/19 Inventory 283,250

Cost of Goods Sold 283,250
To record ending inventory at LC and NRV

12/31/20 Cost of Goods Sold 283,250

Inventory 283,250
To transfer out beginning inventory balance

12/31/20 Inventory 351,250

Cost of Goods Sold............................................................................
351,250
To record ending inventory at LC and NRV

b) 12/31/19 Inventory........................................................................................................
321,000
Cost of Goods Sold............................................................................321,000
To record ending inventory at cost

Loss on Inventory Due to Decline in NRV....................................................

37,750
Allowance to Reduce Inventory to NRV...........................................
37,750
To write down inventory to lower NRV

12/31/20 Cost of Goods Sold........................................................................................

321,000
Inventory............................................................................................
321,000
To transfer out beginning inventory balance

12/31/20 Inventory........................................................................................................
385,000
Cost of Goods Sold............................................................................385,000
To record ending inventory at cost

Allowance to Reduce Inventory

to NRV........................................................................................................
4,000*
Recovery of Loss Due to
Decline in NRV of Inventory.......................................................... 4,000
To record recovery of write down of inventory
to lower NRV
*Cost of inventory at 12/31/19 $321,000
Lower of cost and NRV at 12/31/19 (283,250)
Allowance amount needed to reduce inventory
to NRV (a) $ 37,750
 Page 10 of 19

Cost of inventory at 12/31/20 $385,000

Lower of cost and NRV at 12/31/20 (351,250)
Allowance amount needed to reduce inventory
to NRV (b) $ 33,750

Recovery of previously recognized loss = (a) – (b)

= $37,750 – $33,750
= $4,000
Part 2:

Salamander Limited makes the following errors during the current year. Each error is an
independent case.
1. Ending inventory is overstated by $1,020, but purchases are recorded correctly.
2. Both ending inventory and a purchase on account are understated by the same amount.
(Assume this purchase of $1,500 was recorded in the following year.)
3. Ending inventory is correct, but a purchase on account was not recorded. (Assume this
purchase of $850 was recorded in the following year.)

Required:
Show the effect of each error on working capital, current ratio (assume that the current ratio is
greater than 1), retained earnings, and net income for the current year and the following year.

Solution:

Current Year Subsequent Year

1. Working capital Overstated by $1,020 No effect
Current ratio Overstated No effect
Retained earnings Overstated by $1,020 No effect
Net income Overstated by $1,020 Understated by $1,020

2. Working capital No effect No effect

Current ratio Overstated No effect
Retained earnings No effect No effect
Net income No effect No effect

3. Working capital Overstated by $850 No effect

Current ratio Overstated No effect
Retained earnings Overstated by $850 No effect
Net income Overstated by $850 Understated by $850

QUESTION FOUR
 Page 11 of 19

On October 2, 2016, the Falk Company purchased $60,000 face amount of Elder 7% bonds to be
held to maturity. The bonds were priced at $53,051, implying a yield of 10%. The bonds mature
on October 1, 2021 and pay interest semi-annually on October 1 and April 1. Falk uses the
effective interest method of amortizing any discount or premium. On December 31, 2016, the
bonds were trading at 87. (Round all final answers to the nearest dollar.)

Required:

1. Prepare the journal entry to record the purchase of the bonds.

2. Prepare any entry (entries) required on December 31, 2016, Falk’s fiscal year end.
3. Prepare any entry (entries) required on April 1, 2017.

Solution

1. Dr. Bond investment at amortized cost 53,051

Cr. Cash 53,051

2. Dr. Interest receivable (60,000 × 7% × 3/12) 1,050

Dr. Bond investment at amortized cost (plug) 276
Cr. Interest revenue (53,051 × 10% × 3/12) 1,326

3. Dr. Cash (60,000 × 7% × 6/12) 2,100

Dr. Bond investment at amortized cost (plug) 276
Cr. Interest receivable 1,050
Cr. Interest revenue (53,051 × 10% × 3/12) 1,326

QUESTION FIVE

FKG Inc. carries the following investments on its books at December 31, 2016, and December
31, 2017. All securities were purchased during 2016.

FV-NI investments:
Company Cost Value, Dec. 31, 2016 Value, Dec. 31, 2017
A Company $25,000 $13,000 $20,000
B Company $13,000 $20,000 $20,000
C Company $35,000 $30,000 $25,000

FV-OCI investments:
Company Cost Value, Dec. 31, 2016 Value, Dec. 31, 2017
X Company $210,000 $130,000 $50,000
Y Company $ 50,000 $ 60,000 $70,000
 Page 12 of 19

Required:

1. What net effect would the valuation of these stocks have on 2017 net income?
2. Calculate the balance in Accumulated Other Comprehensive Income as at December 31,
2017.

Solution

1. FV-NI investments only:

A Company (20,000 – 13,000) $7,000
B Company (20,000 – 20,000) 0
C Company (25,000 – 30,000) (5,000)
Increase in 2017 net income $2,000

2. Accumulated Other Comprehensive Income, December 31, 2017

X Company (50,000 – 210,000) 160,000 dr.
Y Company (70,000 – 50,000) 20,000 cr.
Accumulated Other Comprehensive Income 140,000 dr.
 Page 13 of 19

QUESTION SIX

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.

Required:
Prepare the entries on both companies’ books assuming that the transaction has commercial
substance.

Solution

Athens Inc.
Machinery(“new”)............................ 1,140,000 Cost $1,800,000
Cash ............................................ 30,000 A/D 900,000
Accum. Depreciation—.................... BV 900,000
Machinery (“old”)...................... 900,000 FV 1,170,000
Gain on Exchange of Gain $ 270,000
Plant Assets......................... 270,000
Machinery........................... 1,800,000

Sparta Corp.
Machinery(“new”) 1,170,000 Cost $2,160,000
Accum. Depreciation— Machinery 1,188,000 A/D 1,188,000
BV 972,000
Gain on Exchange of Plant Assets 168,000 FV 1,140,000
Machinery (“old”) 2,160,000 Gain $ 168,000
Cash 30,000
 Page 14 of 19

QUESTION SEVEN

Sigma Company has a piece of equipment with an original cost of $1,440,000. The accumulated
depreciation had a balance of 480,000 at the end of 2017. The equipment's fair value at the end
of 2017 was $1,056,000. This is the second year that the company has revalued this equipment.
The prior revaluation adjustment was $20,000.

Required:

a. Record the journal entry for the revaluation adjustment assuming that Sigma uses the
elimination method.

b. Record the journal entry for the revaluation adjustment assuming that Sigma uses the
proportional method.

Solution

a. Elimination method

Dr. Accumulated depreciation 480,000

Cr. Equipment (1,440 - 1,056) 384,000
Cr. OCI — revaluation surplus ($1,056 - $960) 96,000

b. Proportional method

Dr. Equipment (+10% × $1,440,000) 144,000

Cr. Accumulated depreciation (+10% × $480,000) 48,000
Cr. OCI — revaluation surplus ($1,056 - $960) * 96,000

* Just prior to the year-end revaluation, the carrying value is $960,000. The fair value of
$1,056,000 is a 10% increase. Therefore, under the proportional method, both the gross carrying
amount and accumulated depreciation increase by 10%.
 Page 15 of 19

QUESTION EIGHT

On January 20, 2018, Trail Corp. purchased a luxury apartment complex in British Columbia for
$10 Million cash. In addition to the purchase price, Trail paid transfer fees of $150,000, and legal
fees of $20,000.

Wages paid to maintenance staff during each of the following three years:
2018: $103,000
2019: $107,000
2020: $110,000

Fair value information:

Dec 31, 2018: $9.1 Million
Dec 31, 2019: $10.9 Million
Dec 31, 2020: $11.7 Million

Other information:
The complex qualifies as investment property.
Trail applies the fair value model to all its investment property.

Instructions
Prepare all required journal entries for 2018, 2019, and 2020.

Solution

Journal Entries – 2018

Investment Property—Apartment Complex.................................... 10,170,000
Cash........................................................................................... 10,170,000
To account for acquisition on January 20
($10,000,000 + $150,000 + $20,000 = $10,170,000)

Wages expense................................................................................. 103,000

Cash........................................................................................... 103,000
To account for wages paid during 2018

Loss in value of investment property............................................... 1,070,000

Investment property—Apartment Complex.............................. 1,070,000
To adjust the value of the investment property to fair value at Dec 31, 2018
($10,170,000 – $9,100,000 = $1,070,000)

Journal Entries – 2019

Wages expense................................................................................. 107,000
Cash........................................................................................... 107,000
To account for wages paid during 2019
 Page 16 of 19

Investment property—Apartment Complex..................................... 1,800,000

Gain in value of investment property........................................ 1,800,000
To adjust the value of the investment property
to fair value at Dec 31, 2019
($10,900,000 – $9,100,000 = $1,800,000)

Journal Entries – 2020

Wages expense................................................................................. 110,000
Cash........................................................................................... 110,000
To account for wages paid during 2020

Investment property—Apartment Complex..................................... 800,000

Gain in value of investment property........................................ 800,000
To adjust the value of the investment property
to fair value at Dec 31, 2020
($11,700,000 – $10,900,000 = $800,000)

QUESTION NINE

ABC company has two product lines. The information related to these two product lines is given
below. What impairment, if any, exists on these product lines?

Product A Product B
Original cost $7,222,000 $12,536,000
Accumulated depreciation 2,500,000 4,200,000
Fair value 5,062,000 8,616,000
Costs to sell 90,000 340,000
Value in use 4,375,000 8,300,000

Solution

A) Product A
Value in use $4,375,000

Fair value 5,062,000

Less: costs to sell (90,000)
Fair value less costs to sell $4,972,000

Original cost 7,222,000

Less: accumulated depreciation (2,500,000)
Net carrying value 4,722,000
Less: recoverable amount (higher of value in use and FV 4,972,000
 Page 17 of 19

less costs to sell)

Impairment loss $ 0

Since fair value less costs to sell is greater than net carrying value, there is no impairment.

Product B
Value in use $8,300,000

Fair value 8,616,000

Less: costs to sell (340,000)
Fair value less costs to sell $8,276,000

Original cost 12,536,000

Less: accumulated depreciation (4,200,000)
Net carrying value 8,336,000
Less: recoverable amount (higher of value in use and FV 8,300,000
less costs to sell)
Impairment loss $ 36,000

QUESTION TEN

A partial statement of financial position of Bluewater Ltd. on December 31, 2019, showed the
following property, plant, and equipment assets accounted for under the cost model (accumulated
depreciation includes depreciation for 2019):
Buildings    $350,000  
Less: accumulated depreciation 50,000
$300,000

Equipment 120,000
Less: accumulated depreciation 40,000
80,000

Bluewater uses straight-line depreciation for its building (remaining useful life of 20 years, no
residual value) and for its equipment (remaining useful life of 8 years, no residual value).
Bluewater applies IFRS and has decided to adopt the revaluation model for its building and
equipment, effective December 31, 2019. On this date, an independent appraiser assessed the fair
value of the building to be $275,000 and that of the equipment to be $90,000.

Instructions

Prepare the necessary general journal entry(ies), if any, to revalue the building and the equipment
as at December 31, 2019, using the proportionate method to revalue the building and the
equipment. Do not round intermediate calculations but round final amounts to the nearest dollar.
 Page 18 of 19

Solution

Building

Before Proportional
revaluation after revaluation
(A) (B) (B) – (A)
Building $350,000 x 275/300 $320,833 $(29,167)
Accumulated
depreciation 50,000 x 275/300 45,833 (4,167)
Carrying amount $300,000 x 275/300 $275,000 $(25,000)

Equipment

Before Proportional after

revaluation revaluation
(A) (B) (B) – (A)
Equipment $120,000 x 90/80 $135,000 $15,000
Accumulated
depreciation 40,000 x 90/80 45,000 5,000
Carrying amount $ 80,000 x 90/80 $ 90,000 $10,000

The journal entry to revalue the building on December 31, 2019:

Accumulated Depreciation – Buildings 4,167
Revaluation Gain or Loss 25,000
Buildings 29,167

The journal entry to revalue the equipment on December 31, 2019:

Equipment 15,000
Accumulated Depreciation – Equipment 5,000
Revaluation Surplus (OCI) 10,000
To adjust the Equipment account to fair value

The journal entries to record depreciation expense for the year ended December 31, 2020:
Depreciation Expense 13,750
Accumulated Depreciation – Buildings 13,750
($275,000 ÷ 20)
 Page 19 of 19

Depreciation Expense 11,250

Accumulated Depreciation – Equipment 11,250
($90,000 ÷ 8)