Exercise 13-14 Oil Products Company purchases an oil tanker depot on January 1,
ID: 2584035 • Letter: E
Question
Exercise 13-14 Oil Products Company purchases an oil tanker depot on January 1, 2017, at a cost of $600,000. 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 $75,000 to dismantle the depot and remove the tanks at the end of the depot's useful life. Prepare the journal entries to record the depot (considered a plant asset) and the asset retirement obligation for the depot on January 1, 2017, Based on an effective-interest rate of 6%, the present value of the asset retirement obligation on January 1, 2017, is $41,879. (If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit January 1, 2017 To record the depot) January 1, 2017 To record the asset retirement obligation) 559 AM 1302017
Explanation / Answer
Date Accounts title and explanation Dr. Cr. (a) January 1,2017 Plant Assets 600000 To cash 600000 [To record the depot] January 1,2017 Plant Assets 41879 To Asset retirement obligation 41879 [To record the Asset retirement obligation] (b) December 31,2017 Depreciation expense [$600000 / 10 years] 60000 To Accumulated Depreciation 60000 [To record depreciation for the depot] December 31,2017 Depreciation expense [$41879 / 10 years] 4188 To Accumulated Depreciation 4188 [To record depreciation for the Asset retirement obligation] December 31,2017 Interest expense [$41879 * 6%] 2513 To Asset retirement obligation 2513 [To record interest on Asset retirement obligation ] (c) December 31,2026 Asset retirement obligation 75000 loss on Asset retirement obligation's settlement [80000 - 75000] 5000 To cash 80000
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.