[lbi18]

My main study source is Becker, but I did purchase the Wiley Test Bank for some additional practice. I came across this question today that perplexes me:

Veronica Corp. uses the revaluation model for intangible assets. On March 1, Year 1, Veronica acquired intangibles assets with an indefinite life for $200,000. On December 31, Year 1, it was determined that the recoverable amount for these intangible assets was $180,000. On December 31, Year 2, it was determined that the recoverable amount for these intangible assets was $187,000. How should Veronica recognize the gain or loss in the December 31, Year 2 financial statements?

A. Unrealized loss in OCI of $20,000

B. Gain on the Income Statement of $7,000

C. Loss on the Income Statement of $20,000

D. Unrealized gain in OCI of $7,000

According to Wiley, the answer is D. Here is why I am confused: Under the revaluation model, the general rule is that revaluation surpluses (gains) are recognized in OCI and that revaluation losses are recognized in earnings. BUT, the exception is that if a revaluation gain reverses a previous revaluation loss, it will be recognized in the Income Statement. Also, if a revaluation loss reverses a previous revaluation gain, it will be recognized in OCI.

Why is the answer not B then? There was a revaluation loss of $20,000 in Year 1, and a revaluation gain of $7,000 in Year 2. Doesn’t that $7,000 gain reverse the previously recognized loss of $20,000?

FAR - 85
AUD - 99
REG - 85
BEC - 10/4/13 (Waiting)

Using Becker Self-Study

[lbi18]

No one?

I'd appreciate any answers haha

FAR - 85
AUD - 99
REG - 85
BEC - 10/4/13 (Waiting)

Using Becker Self-Study

[henryv]

That's weird. My answer is also B. This is the problem with some books. They don't clearly explain the logic of why is that the answer. It's not only wiley though.

FAR - 92 02/2013
AUD - 90 05/2013
REG - 85 10/2013
BEC - 80 12/2013

I'M DONE. THANK YOU LORD!

[Getting a CPA]

It's an unrealized gain of $7,000, is it not? Which would mean it belongs in OCI?

Hmmm….I don't know.

[Author]

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