Required a. On January 1, record the entry for (1) the purchase and installation of the storage tank and (2) the related asset retirement obligation b. Record adjusting entries on December 31 of the current year for (1) depreciation and (2) accretion. c. Assume that on December 31, fifteen years later, the tank is safely removed at a cost of $230,000. Record the required journal entry. Note: Round answers to the nearest whole dollar. a 2. jan 1 b. 1. Dec. 31 b. 2. Dec 31 c. Dec. 31, Year 15 Account Name To record purchase of storage tank To record asset retirementation To record depreciation To record accretion To record asset retirement << 0 0 0 0 0 Cr. 0 0 0 0 0 0 0

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Recording Asset Retirement Obligation
BPP Company maintains underground storage tanks for its operations. A new storage tank was installed and made ready for use at a cost of $2,000,000 on January 1 of the current year. The tank's useful life is estimated at 15 years, at which time the company is legally required to remove the tank and restore the area at an estimated cost of $200,000. The appropriate discount rate for the
company is 12%.
Required
a. On January 1, record the entry for (1) the purchase and installation of the storage tank and (2) the related asset retirement obligation.
b. Record adjusting entries on December 31 of the current year for (1) depreciation and (2) accretion.
c. Assume that on December 31, fifteen years later, the tank is safely removed at a cost of $230,000. Record the required journal entry.
Note: Round answers to the nearest whole dollar.
a. 1. Jan. 1
a. 2. Jan. 1
b. 1. Dec. 31
b. 2. Dec. 31
c. Dec. 31, Year 15
Account Name
To record purchase of storage tank
To record asset retirement obligation
To record depreciation
To record accretion
To record asset retirement
>
>
Dr.
0
0
0
O
O
0
O O
0
OOO
0
0
Cr.
0
0
O O
0
0
0
0
0
0
O O
0
0
Transcribed Image Text:Recording Asset Retirement Obligation BPP Company maintains underground storage tanks for its operations. A new storage tank was installed and made ready for use at a cost of $2,000,000 on January 1 of the current year. The tank's useful life is estimated at 15 years, at which time the company is legally required to remove the tank and restore the area at an estimated cost of $200,000. The appropriate discount rate for the company is 12%. Required a. On January 1, record the entry for (1) the purchase and installation of the storage tank and (2) the related asset retirement obligation. b. Record adjusting entries on December 31 of the current year for (1) depreciation and (2) accretion. c. Assume that on December 31, fifteen years later, the tank is safely removed at a cost of $230,000. Record the required journal entry. Note: Round answers to the nearest whole dollar. a. 1. Jan. 1 a. 2. Jan. 1 b. 1. Dec. 31 b. 2. Dec. 31 c. Dec. 31, Year 15 Account Name To record purchase of storage tank To record asset retirement obligation To record depreciation To record accretion To record asset retirement > > Dr. 0 0 0 O O 0 O O 0 OOO 0 0 Cr. 0 0 O O 0 0 0 0 0 0 O O 0 0
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