Tamarisk Company purchases an oil tanker depot on January 1, 2025, at a cost of $572,200. Tamarisk 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. The company estimates the dismantle and removal will cost $70,740 at the end of the depot's useful life. Prepare the journal entries to record the depot and asset retirement obligation for the depot on January 1, 2025. Based on an effective interest rate of 5%, the present value of the asset retirement obligation on January 1, 2025, is $43,428. Use the Plant Assets account for the tanker depot. (If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually. List all debit entries before credit entries.) Account Titles and Explanation (To record the depot) Debit Credit []
Tamarisk Company purchases an oil tanker depot on January 1, 2025, at a cost of $572,200. Tamarisk 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. The company estimates the dismantle and removal will cost $70,740 at the end of the depot's useful life. Prepare the journal entries to record the depot and asset retirement obligation for the depot on January 1, 2025. Based on an effective interest rate of 5%, the present value of the asset retirement obligation on January 1, 2025, is $43,428. Use the Plant Assets account for the tanker depot. (If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually. List all debit entries before credit entries.) Account Titles and Explanation (To record the depot) Debit Credit []
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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.
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Transcribed Image Text:Tamarisk Company purchases an oil tanker depot on January 1, 2025, at a cost of $572,200. Tamarisk 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. The company
estimates the dismantle and removal will cost $70,740 at the end of the depot's useful life.
Prepare the journal entries to record the depot and asset retirement obligation for the depot on January 1, 2025. Based on an
effective-interest rate of 5%, the present value of the asset retirement obligation on January 1, 2025, is $43,428. Use the Plant
Assets account for the tanker depot. (If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Credit
account titles are automatically indented when amount is entered. Do not indent manually. List all debit entries before credit entries.)
Account Titles and Explanation
(To record the depot)
(To record the asset retirement obligation)
Debit
Credit
10
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