On January 1, 2023, IIV purchased the right to extract oil from proven oil reserves on provincial government land. It paid $1,900,000 for production equipment and debited the "Equipment" account for the purchase price. Operations began on that day, and the agreement provided for three years of operations (until December 31, 2025), at which time it was estimated the oil reserves would be exhausted. DMH planned to extract the oil evenly over the three-year period and therefore decided to depreciate the cost of the equipment using the straight-line method, with no residual or salvage value. Included in the agreement with the government was a provision that the business would clean up the site at the end of the three years. On the date of purchase, IIV'Ss engineers and accountants estimated that the total cost to clean up the site on December 31, 2025 would total $350,000, and the discount rate to be applied to that future cost would be 8%. (Note: clean-up costs are also being debited to "Equipment"). On December 31, 2025, a contractor was paid $ 340, 400 to clean up the site, and in January 2026 the site was closed. DMH's fiscal year end was December 31, and the company followed ASPE. Click here to view the factor table. Click here to view the factor table. Prepare the required
On January 1, 2023, IIV purchased the right to extract oil from proven oil reserves on provincial government land. It paid $1,900,000 for production equipment and debited the "Equipment" account for the purchase price. Operations began on that day, and the agreement provided for three years of operations (until December 31, 2025), at which time it was estimated the oil reserves would be exhausted. DMH planned to extract the oil evenly over the three-year period and therefore decided to depreciate the cost of the equipment using the straight-line method, with no residual or salvage value. Included in the agreement with the government was a provision that the business would clean up the site at the end of the three years. On the date of purchase, IIV'Ss engineers and accountants estimated that the total cost to clean up the site on December 31, 2025 would total $350,000, and the discount rate to be applied to that future cost would be 8%. (Note: clean-up costs are also being debited to "Equipment"). On December 31, 2025, a contractor was paid $ 340, 400 to clean up the site, and in January 2026 the site was closed. DMH's fiscal year end was December 31, and the company followed ASPE. Click here to view the factor table. Click here to view the factor table. Prepare the required
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:On January 1, 2023, IIV purchased the right to extract oil from proven oil reserves on provincial government land. It paid
$1,900,000 for production equipment and debited the "Equipment" account for the purchase price. Operations began
on that day, and the agreement provided for three years of operations (until December 31, 2025), at which time it was
estimated the oil reserves would be exhausted. DMH planned to extract the oil evenly over the three-year period and
therefore decided to depreciate the cost of the equipment using the straight-line method, with no residual or salvage
value. Included in the agreement with the government was a provision that the business would clean up the site at the
end of the three years. On the date of purchase, IIV'Ss engineers and accountants estimated that the total cost to clean
up the site on December 31, 2025 would total $350,000, and the discount rate to be applied to that future cost would
be 8%. (Note: clean-up costs are also being debited to "Equipment"). On December 31, 2025, a contractor was paid $
340, 400 to clean up the site, and in January 2026 the site was closed. DMH's fiscal year end was December 31, and the
company followed ASPE. Click here to view the factor table. Click here to view the factor table. Prepare the required
journal entries for each of the following dates, using the expense approach. (Note: no inventory or sales related journal
entries are required): January 1, 2023 Use (a) factor Table A.2, (b) a financial calculator, or (c) Excel function PV..
December 31, 2023 December 31, 2024. December 31, 2025 (Round present value factor calculations to 5 decimal
places, e.g. 0.52750 and round answers to 0 decimal places, e.g. 5,275. Credit account titles are automatically
indented when the amount is entered. Do not indent manually. List all debit entries before credit entries. If no entry is
required, select "No Entry" for the account titles and enter 0 for the amounts. Record journal entries in the order
presented in the problem.)
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