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ID: 2490993 • Letter: W
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(a)
Date
Account Titles and Explanation
Debit
Credit
(To record the depot)
(To record the asset retirement obligation)
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(b)
Account Titles and Explanation
Debit
Credit
(To record depreciation for the depot)
(To record depreciation on asset retirement obligation)
(To record interest on asset retirement obligation)
Oil Products Company purchases an oil tanker depot on January 1, 2014, at a cost of $660,000. 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 $63,500 to dismantle the depot and remove the tanks at the end of the depot’s useful life.Warning
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Explanation / Answer
solution.
One more journel entry is required on the date of 31st december.
Provision for dismantletion account debited = $6,350
Dismantletion account credited = $6,350
Being Annual cost of dismantletion Expense paid equally in depot 10 year life.
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