Norwich Company purchased real estate property in 2017 for $18 million ($8 million for land and $10 million for a building). The building had a useful life of 20 years at the time of purchase. The company’s policy is to use the straight-line method to depreciate buildings and to take a full year of depreciation in the year of acquisition and none in the year of disposal. 

The company opted to use the revaluation model for its property holdings, with a fair value estimate every three years. At the end of 2020, an independent appraisal valued the property at $18 million, which management allocated to the land and building in proportion to their net carrying amounts (after including the effect of depreciation for 2020). For revaluations, Norwich’s policy is to use the proportional method to adjust the gross carrying amount and accumulated depreciation. 

It is now March 2022. The audit for the year ended December 31, 2021, identified an error in the revaluation recorded in 2020. Specifically, detailed examination of the appraisal documents shows that the increase in value was entirely attributable to the land and none to the building. Depreciation for 2021 had been recorded prior to the discovery of the error. However, the books for 2021 have not yet been closed. 

Required:

a. Reproduce the journal entries that Norwich used to record the property revaluation at the end of 2020. 

b. Provide the journal entries that Norwich should have recorded for the revaluation. 

c. Record the journal entries necessary to correct Norwich’s accounts.