Oil Products Company purchases an oil tanker depot on January 1, 2014, at a cost
ID: 2454861 • Letter: O
Question
Oil Products Company purchases an oil tanker depot on January 1, 2014, at a cost of $645,600. 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 $60,900 to dismantle the depot and remove the tanks at the end of the depot’s useful life.
(a)
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 $645,600. 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 $60,900 to dismantle the depot and remove the tanks at the end of the depot’s useful life.
Explanation / Answer
Answer: (a) Journal Entries:
1 jan 2014 Depot . ................................................ 645600
Cash. .............................................................. 645600
January 1, 2014 Depot . ................................................ 37387
Asset Retirement Obligation . ........................ 37387
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