Oil Products Company purchases an oil tanker depot on January 1, 2014, at a cost

Question

Oil Products Company purchases an oil tanker depot on January 1, 2014, at a cost of $610,700. Oil Products 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 $64,600 to dismantle the depot and remove the tanks at the end of the depot’s useful life.

* Question 3

Date

Account Titles and Explanation

Debit

Credit

(To record the depot)

(To record the asset retirement obligation)

Oil Products Company purchases an oil tanker depot on January 1, 2014, at a cost of $610,700. Oil Products 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 $64,600 to dismantle the depot and remove the tanks at the end of the depot’s useful life.

Explanation / Answer

Date Account Titles and Explanation DR CR January 1, 2014 Depot 6,10,700 Cash 6,10,700 January 1, 2014 Depot 36,072 Asset Retirement Obligation 36,072

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