On 01-01-15, G purchased a machine for $10,000,000. Installation costs incurred and paid for on 01-01-15 were $50,000. G started using the machine on 01-01-15. G estimates it will use the machine for 3 years. At the end of the 3rd year, G will have to dispose of the machine at an estimated cost of $435,000. Assume as of 01-01-15 the interest rate on US Treasury securities was 1.75% and G’s credit standing required a 2% risk premium. G uses a straight-line depreciation method and assumes no salvage value.What amount should G report on its balance sheet as a fixed asset (machine) as of 12-31-15?Prepare an excel spreadsheet that clearly identifies and clearly labels G’s ARO obligation balance as of 12-31 for every year from 2015 to 2017 AND G’s accretion expense for every year for 2015 to 2017.Prepare the entries G should make related to the equipment and its ARO for the year ended 12-31-16 AND 12-31-17?On 01-01-18, G paid a vendor $420,000 to dispose of the machine in accordance with current environmental regulations. Prepare the entry/entries G should make to record the disposal.

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Answered: On 01-01-15, G purchased a machine for…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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On 01-01-15, G purchased a machine for $10,000,000. Installation costs incurred and paid for on 01-01-15 were $50,000. G started using the machine on 01-01-15. G estimates it will use the machine for 3 years. At the end of the 3^rd year, G will have to dispose of the machine at an estimated cost of $435,000. Assume as of 01-01-15 the interest rate on US Treasury securities was 1.75% and G’s credit standing required a 2% risk premium. G uses a straight-line depreciation method and assumes no salvage value.

1. What amount should G report on its balance sheet as a fixed asset (machine) as of 12-31-15?
2. Prepare an excel spreadsheet that clearly identifies and clearly labels G’s ARO obligation balance as of 12-31 for every year from 2015 to 2017 AND G’s accretion expense for every year for 2015 to 2017.
3. Prepare the entries G should make related to the equipment and its ARO for the year ended 12-31-16 AND 12-31-17?
4. On 01-01-18, G paid a vendor $420,000 to dispose of the machine in accordance with current environmental regulations. Prepare the entry/entries G should make to record the disposal.

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