Your answer is partially correct. Try again. Bridgeport Corp. erected and placed
ID: 2338891 • Letter: Y
Question
Your answer is partially correct. Try again. Bridgeport Corp. erected and placed into service an offshore oil platform on January 1, 2017, at a cost of $11 million. Bridgeport is legally required to dismantle and remove the platform at the end of its 10-year useful life. Bridgeport estimates that it will cost $1.1 million to dismantle and remove the platform at the end of its useful life and that the discount rate to use should be 7%. Prepare the entry to record the asset retirement obligation. Assume that none of the $1.1 million cost relates to production. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.) Click here to view the factor table. Account Titles and Explanation Debit Credit Drilling Platform Asset Retirement ObligationExplanation / Answer
Asset retirement obligation or decommissioning cost is the cost that a company is expecting to incur in disposing of the asset and undoing the modifications that has been made to the installation site. As per the Accounting standard , the company should include the present value of the expected future decommissioning cost in the total acquisition cost of the asset. This can be done by passing the following journal entry:
In the Given case the future cost to dismantle the platform at the end of 10 years = 1.1 million
Discounting rate = 7%
Hence , Present value of expected expenditure = 1.1 million * 1/(1.07)10
= 1.1 M * .50834
=.55917 Million
The following journal entry is to be passed
Drilling Platform
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