/*! This file is auto-generated */ .wp-block-button__link{color:#fff;background-color:#32373c;border-radius:9999px;box-shadow:none;text-decoration:none;padding:calc(.667em + 2px) calc(1.333em + 2px);font-size:1.125em}.wp-block-file__button{background:#32373c;color:#fff;text-decoration:none} Q12BE Calaf鈥檚 Drillers erects and pl... [FREE SOLUTION] | 91影视

91影视

Log out

Learning Materials

Features

Discover

Chapter 13: Q12BE (page 692)

Calaf鈥檚 Drillers erects and places into service an off-shore oil platform on January 1, 2018, at a cost of \(10,000,000. Calaf is legally required to dismantle and remove the platform at the end of its useful life in 10 years. Calaf estimatesit will cost \)1,000,000 to dismantle and remove the platform at the end of its useful life in 10 years. (The fair value at January 1,2018, of the dismantle and removal costs is $450,000.) Prepare the entry to record the asset retirement obligation.

Short Answer

Expert verified

Oil Platform will be debited and Asset Retirement Obligation will be credited by $450,000, respectively.

Step by step solution

01

Explanation on asset retirement obligation

Company is required to record the asset retirement obligation, also known as ARO, in case there is legal liability for retirement of asset, and the disposal amount is reasonably estimated. This disposal or removal cost is recorded at fair value.

02

Journal entry

Date

Accounts & Explanations

Debit

Credit

Jan.1,2018

Oil Platform

$450,000

Asset Retirement Obligation

$450,000

To record asset retirement obligation

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with 91影视!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

(Cash Flow Hedge) On January 2, 2017, Parton Company issues a 5-year, \(10,000,000 note at LIBOR, with

interest paid annually. The variable rate is reset at the end of each year. The LIBOR rate for the first year is 5.8%.

Parton Company decides it prefers fixed-rate financing and wants to lock in a rate of 6%. As a result, Parton enters into an

interest rate swap to pay 6% fixed and receive LIBOR based on \)10 million. The variable rate is reset to 6.6% on January 2, 2018.

Instructions

(a) Compute the net interest expense to be reported for this note and related swap transactions as of December 31, 2017.

(b) Compute the net interest expense to be reported for this note and related swap transactions as of December 31, 2018.

BE13-11 (L03) Buchanan Company recently was sued by a competitor for patent infringement. Attorneys have determined that it is probable that Buchanan will lose the case and that a reasonable estimate of damage to be paid by Buchanan is \(300,000. In light of this case, Buchanan is considering establishing a \)100,000 self-insurance allowance. What entry(ies), if any, should Buchanan record to recognize this loss contingency?

Question: EXCEL (Derivative Financial Instrument) The treasurer of Miller Co. has read on the Internet that the stock

price of Wade Inc. is about to take off. In order to profit from this potential development, Miller Co. purchased a call option on

Wade common shares on July 7, 2017, for \(240. The call option is for 200 shares (notional value), and the strike price is \)70. (The

market price of a share of Wade stock on that date is \(70.) The option expires on January 31, 2018. The following data are available

with respect to the call option.

Date Market Price of Wade Shares Time Value of Call Option

September 30, 2017 \)77 per share $180

December 31, 2017 75 per share 65

January 4, 2018 76 per share 30

Instructions

Prepare the journal entries for Miller Co. for the following dates.

(a) July 7, 2017鈥擨nvestment in call option on Wade shares.

(b) September 30, 2017鈥擬iller prepares financial statements.

(c) December 31, 2017鈥擬iller prepares financial statements.

(d) January 4, 2018鈥擬iller settles the call option on the Wade shares.

Leppard Corporation Sells DVD players. The corporation also offers its customers a 4-year warranty contract. During 2017, Leppard sold 20,000 warranty contracts at \(99 each. The corporation spent \)180,000 servicing warranties during 2017. Prepare Leppard鈥檚 journal entries for (a) the sale of contracts, (b) the cost of servicing the warranties, and (c) the recognition of warranty revenue. Assume the service costs are inventory costs.

Schmitt Company must make computations and adjusting entries for the following independent situations at December 31, 2018.

1. Its line of amplifiers carries a 3-year warranty against defects. On the basis of past experience the estimated warranty costs related to dollar sales are first year after sale鈥�2% of sales revenue; second year after sale鈥�3% of sales revenue; and third year after sale鈥�5% of sales revenue. Sales and actual warranty expenditures for the first 3 years of business were:

Sales Revenue

Warranty Expenditures

2016

\(800,000

\)6,500

2017

1,100,000

17,200

2018

1,200,000

62,000

Instructions

Compute the amount that Schmitt should report as a liability in its December 31, 2018, balance sheet. Assume that all sales are made evenly throughout each year with warranty expenses also evenly spaced relative to the rates above.

2. With some of its products, Schmitt includes coupons that are redeemable in merchandise. The coupons have no expiration date and, in the company鈥檚 experience, 40% of them are redeemed. The liability for unredeemed coupons at December 31, 2017, was \(9,000. During 2018, coupons worth \)30,000 were issued, and merchandise worth $8,000 was distributed in exchange for coupons redeemed.

Instructions

Compute the amount of the liability that should appear on the December 31, 2018, balance sheet
See all solutions

Recommended explanations on Business Studies Textbooks

Actuarial Science in Business

Read Explanation

International Business

Read Explanation

Corporate Finance

Read Explanation

Managers

Read Explanation

Sales in Business

Read Explanation

Finance Literacy (Business Studies)

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.