Bassinger Company purchases an oil tanker depot on January 1, 2010, at a cost of

Question

Bassinger Company purchases an oil tanker depot on January 1, 2010, at a cost of $600,000. Bassinger expects to operate the depot for 10 years, at which time it is legally required to dismantle the depot and remove the underground storage tanks. It is estimated that it will cost $70,000 to dismantle the depot and remove the tanks at the end of the depot's useful life. (Round all answers to 0 decimal places, e.g. 21,120. For multiple debit/credit entries, list amounts from largest to smallest, e.g. 10, 8, 6.)

(a) Prepare the journal entries to record the depot and the asset retirement obligation for the depot on January 1, 2010. Based on an effective interest rate of 6%, the present value of the asset retirement obligation on January 1, 2010, is $39,087.
(b)Prepare any journal entries required for the depot and the asset retirement obligation at December 31, 2010. Bassinger uses straight-line depreciation; the estimated residual value for the depot is zero.

Explanation / Answer

a) Depot 600,000
Cash 600,000

Depot 39,087
Asset Retirement Obligation 39,087


b) Depreciation Expense 60,000
Accumulated Depreciation 60,000

Depreciation Expense 3,909   
Accumulated Depreciation 3,909

[Asset Retirement Obligation 39,087/10 = 3,908.7 = 3,909]

Interest Expense 2,345
Assets Retirement Obligation 2,345

[Asset Retirement Obligation * 6%interest]

Related Questions

Navigate

• Browse (All)
• Browse B
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.