Wildhorse Company purchases an oil tanker depot on January 1, 2017, at a cost of
ID: 2532064 • Letter: W
Question
Wildhorse Company purchases an oil tanker depot on January 1, 2017, at a cost of $572,600. Wildhorse 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 $71,850 to dismantle the depot and remove the tanks at the end of the depot’s useful life.
Date
Account Titles and Explanation
Debit
Credit
(To record the depot)
(To record the asset retirement obligation)
Date
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)
Date
Account Titles and Explanation
Debit
Credit
-
-
Wildhorse Company purchases an oil tanker depot on January 1, 2017, at a cost of $572,600. Wildhorse 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 $71,850 to dismantle the depot and remove the tanks at the end of the depot’s useful life.
Explanation / Answer
SOLUTION
S.No. Date Account titles and Explanation Debit ($) Credit ($) 1. Jan.1, 2017 Depot 572,600 Cash 572,600 (To record the depot) Jan.1, 2017 Depot 40,120 Asset Retirement Obligation 40,120 (To record the asset retirement obligation) 2. Dec.31, 2017 Depreciation Expense ($572,600 /10 years) 57,260 Accumulated Depreciation 57,260 (To record depreciation for the depot) Dec.31, 2017 Depreciation Expense ($40,120 / 10 years) 4,012 Accumulated Depreciation 4,012 (To record depreciation on asset retirement obligation) Dec.31, 2017 Interest Expense ($40,120 *6%) 2,407 Asset Retirement Obligation 2,407 (To record interest on asset retirement obligation) 3. Dec. 31, 2026 Asset Retirement Obligation 71,850 Loss on Asset Retirement Obligation settlement 4,600 Cash 76,450Related Questions
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