Leaning Tower Inc. developed and operationalized an offshore oil platform on Mar

Question

Leaning Tower Inc. developed and operationalized an offshore oil platform on March 1, 2018 at a cost of $10 million. Leaning Tower Inc. is legally required to dismantle and remove the platform at the end of its nine-year useful life. Leaning Tower Inc. estimates that it will cost $1 million to dismantle and remove the platform at the end of its useful life and that the discount rate to use should be 8%. Prepare the entry to record the asset retirement obligation. Assume that none of the $1 million cost relates to production.

Explanation / Answer

March 1, 2018

Oil platform account(fixed asset) Dr. $10.46

To Accounts payable account/ cash account Cr. $10

To Asset retirement obligation a/c. Cr. $0.46

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