On January 1, 2019, Barbosa Company purchased a coal mining site for $2,000,000. Under the terms of the purchase agreement, Barbosa must restore the site to specified conditions at an estimated future cost of $325,000. Barbosa estimates that it will be able to operate the site for 20 years and will mine 25,000 tons of coal. Barbosa uses a 8% discount rate. In 2019, Barbosa mined 1,000 tons of coal. Question Journal entries for recording accretion of the Asset Retirement Obligation on December 31, 2020 would include: Debit to Asset Retirement Obligation of $26,000 Debit to Accretion Expense of $6,027 Credit to Accretion Expense of $5,578 Credit to Asset Retirement Obligation of $26,000
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
On January 1, 2019, Barbosa Company purchased a coal mining site for $2,000,000. Under the terms of the purchase agreement, Barbosa must restore the site to specified conditions at an estimated future cost of $325,000. Barbosa estimates that it will be able to operate the site for 20 years and will mine 25,000 tons of coal. Barbosa uses a 8% discount rate. In 2019, Barbosa mined 1,000 tons of coal.
Question
|
Debit to Asset Retirement Obligation of $26,000 |
||
|
Debit to Accretion Expense of $6,027 |
||
|
Credit to Accretion Expense of $5,578 |
||
|
Credit to Asset Retirement Obligation of $26,000 |
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
