Question

Exercise 13-14 (Part Level Submission) Monty Company purchases an oil tanker depot on January 1, 2017, at a cost of $565,300. Monty 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 $71,990 to dismantle the depot and remove the tanks at the end of the depot’s useful life. Collapse question part (a) 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 $40,198. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Answer 1

Step-by-step explanation:

The journal entry is shown below:

On January 1, 2017

Oil tanker depot A/c Dr $565,300

To Cash A/c $565,300

(Being oil tanker depot is purchased for cash)

Oil tanker depot A/c Dr $40,198

To Asset retirement obligation $40,198

(Being Asset retirement obligation is recorded)

Only these two above entries are made. The estimated cost and the effective-interest rate should be ignored