EBK INTERMEDIATE ACCOUNTING: REPORTING
2nd Edition
ISBN: 9781337268998
Author: PAGACH
Publisher: YUZU
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Chapter 11, Problem 14E
1.
To determine
Prepare
2.
To determine
Prepare journal entry for the given transaction.
3.
To determine
State the conceptual explanation for the asset retirement obligation.
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On January 1, 2022, Nader Corp. purchased timberlands for $1,000,000 cash. Under the terms of the purchase agreement, once the timber has been cut and sold, it must restore the site to specified conditions at an estimated future cost of $50,000. There is no residual value for the timberlands. Nader estimates it will cut timber from the site for six (6) years before the site must be restored. It uses a 9% discount rate and rounds all calculations to the nearest whole dollar.
A) The journal entry the company makes on 1/1/22 to record the asset retirement obligation should include which of the following?
Credit to “Asset Retirement Obligation for $29,813.
Credit to “Asset Retirement Obligation” for $50,000.
Debit to “Asset Retirement Obligation” for $29,813.
Debit to “Asset Retirement Obligation” for $50,000.
Credit to “Note Payable” for $50,000.
B) The entry to record accretion expense on the asset retirement obligation (ARO) for the year ending 12/31/22 should include which of the…
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 to record the purchase of the coal mine would include:
Debit to Coal Mine for $2,325,000
Credit to Asset Retirement Obligation for $325,000
Credit to Asset Retirement Obligation for $69,729
Credit to Cash for $2,069,729
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
Chapter 11 Solutions
EBK INTERMEDIATE ACCOUNTING: REPORTING
Ch. 11 - Briefly explain the meaning of the four factors...Ch. 11 - Prob. 2GICh. 11 - Would it be desirable to require all companies to...Ch. 11 - What is the depredation base?Ch. 11 - Prob. 5GICh. 11 - A company should use an accelerated depreciation...Ch. 11 - Prob. 7GICh. 11 - Prob. 8GICh. 11 - Prob. 9GICh. 11 - Prob. 10GI
Ch. 11 - Under U.S. GAAP, in a year in which the fair value...Ch. 11 - Prob. 12GICh. 11 - Prob. 13GICh. 11 - Compare the group and composite methods of...Ch. 11 - Prob. 15GICh. 11 - Describe the accounting for changes and...Ch. 11 - Prob. 17GICh. 11 - Prob. 18GICh. 11 - Explain the meaning of an impaired asset and...Ch. 11 - Prob. 20GICh. 11 - Prob. 21GICh. 11 - Prob. 22GICh. 11 - (Appendix 11.1) Why might depreciation on a...Ch. 11 - A method that excludes residual value from the...Ch. 11 - Prob. 2MCCh. 11 - Prob. 3MCCh. 11 - Prob. 4MCCh. 11 - A machine with a 4-year estimated useful life and...Ch. 11 - At the end of the expected useful life of a...Ch. 11 - The composite depreciation method: a. is applied...Ch. 11 - Prob. 8MCCh. 11 - A fixed asset with a 5-year estimated useful life...Ch. 11 - Crowder Company acquired a tract of land...Ch. 11 - Susquehanna Company purchased an asset at the...Ch. 11 - Akron Incorporated purchased an asset at the...Ch. 11 - Albany Corporation purchased equipment at the...Ch. 11 - Utica Machinery Company purchases an asset for...Ch. 11 - In Year 1, Utica Machinery Company uses the asset...Ch. 11 - At the beginning of Year 1, Herkimer Co....Ch. 11 - At the end of Year 1, Herkimer Co. sells two...Ch. 11 - Buffalo, Inc., uses composite depreciation for its...Ch. 11 - Prob. 9RECh. 11 - Assume the same information as in RE11-3, except...Ch. 11 - Oneonta Co. owns equipment with a cost of 300,000...Ch. 11 - At the beginning of the current year, Andy Company...Ch. 11 - Prob. 13RECh. 11 - (Appendix 11.1) Auburn Company purchased an asset...Ch. 11 - Gruman Company purchased a machine for 220,000 on...Ch. 11 - Prob. 2ECh. 11 - Prob. 3ECh. 11 - Prob. 4ECh. 11 - Prob. 5ECh. 11 - Prob. 6ECh. 11 - Loban Company purchased four cars for 9,000 each...Ch. 11 - Wilcox Company acquires four machines that have...Ch. 11 - Lightning Delivery Company purchased a new...Ch. 11 - Prob. 10ECh. 11 - Prob. 11ECh. 11 - Prob. 12ECh. 11 - Bailand Company purchased a building for 210,000...Ch. 11 - Prob. 14ECh. 11 - On January 1, 2012, Vallahara Company purchased...Ch. 11 - Prob. 16ECh. 11 - Prob. 17ECh. 11 - Prob. 18ECh. 11 - Prob. 19ECh. 11 - Prob. 20ECh. 11 - Prob. 1PCh. 11 - Prob. 2PCh. 11 - Prob. 3PCh. 11 - Prob. 4PCh. 11 - Prob. 5PCh. 11 - Prob. 6PCh. 11 - Prob. 7PCh. 11 - Prob. 8PCh. 11 - During 2016, Ryel Companys controller asked you to...Ch. 11 - Prob. 10PCh. 11 - On January 1, 2011, Borstad Company purchased...Ch. 11 - Prob. 12PCh. 11 - Prob. 13PCh. 11 - Prob. 14PCh. 11 - Prob. 15PCh. 11 - Prob. 16PCh. 11 - Prob. 17PCh. 11 - Prob. 18PCh. 11 - Prob. 19PCh. 11 - Prob. 20PCh. 11 - Prob. 21PCh. 11 - Prob. 1CCh. 11 - Prob. 2CCh. 11 - Straight-Line and Composite Depreciation Portland...Ch. 11 - Depreciation continues to be one of the most...Ch. 11 - The following two statements concern depreciation:...Ch. 11 - Prob. 6C
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