/*! 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

Question: (Lessee-Lessor Entries, Operating Lease) Cleveland Inc. leased a new crane to Abriendo Construction under a 5-year noncancelable contract starting January 1, 2017. Terms of the lease require payments of \(33,000 each January 1, starting January 1, 2017. Cleveland will pay insurance, taxes, and maintenance charges on the crane, which has an estimated life of 12 years, a fair value of \)240,000, and a cost to Cleveland of \(240,000. The estimated fair value of the crane is expected to be \)45,000 at the end of the lease term. No bargain-purchase or -renewal options are included in the contract. Both Cleveland and Abriendo adjust and close books annually at December 31. Collectibility of the lease payments is reasonably certain, and no uncertainties exist relative to unreimbursable lessor costs. Abriendo鈥檚 incremental borrowing rate is 10%, and Cleveland鈥檚 implicit interest rate of 9% is known to Abriendo.

Instructions

  1. Identify the type of lease involved and give reasons for your classification. Discuss the accounting treatment that should be applied by both the lessee and the lessor.

Journal Entries for Fair Value and Equity Methods) The following are two independent situations.

Situation 1: Conchita Cosmetics acquired 10% of the 200,000 shares of common stock of Martinez Fashion at a total cost of \(13 per

share on March 18, 2017. On June 30, Martinez declared and paid \)75,000 cash dividends to all stockholders. On December 31,

Martinez reported net income of \(122,000 for the year. At December 31, the market price of Martinez Fashion was \)15 per share.

Situation 2: Monica, Inc. obtained significant influence over Seles Corporation by buying 30% of Seles鈥檚 30,000 outstanding shares

of common stock at a total cost of \(9 per share on January 1, 2017. On June 15, Seles declared and paid cash dividends of \)36,000

to all stockholders. On December 31, Seles reported a net income of $85,000 for the year.

Instructions

Prepare all necessary journal entries in 2017 for both situations.

Greco Resort opened for business on June 1 with eight air-conditioned units. Its trial balance on August 31 is as follows.

GRECO RESORT

TRIAL BALANCE

AUGUST 31, 2017

Debit

Credit

Cash

\( 19,600

Prepaid Insurance

4,500

Supplies

2,600

Land

20,000

Buildings

120,000

Equipment

16,000

Accounts Payable

\) 4,500

Unearned Rent Revenue

4,600

Mortgage Payable

60,000

Common Stock

91,000

Retained Earnings

9,000

Dividends

5,000

Rent Revenue

76,200

Salaries and Wages Expense

44,800

Utilities Expenses

9,200

Maintenance and Repairs Expense

3,600

\(245,300

\)245,300

Other data:

  1. The balance in prepaid insurance is a one-year premium paid on June 1, 2017.
  2. An inventory count on August 31 shows \(450 of supplies on hand.
  3. Annual depreciation rates are buildings (4%) and equipment (10%). Salvage value is estimated to be 10% of cost.
  4. Unearned Rent Revenue of \)3,800 was earned prior to August 31.
  5. Salaries of \(375 were unpaid at August 31.
  6. Rentals of \)800 were due from tenants at August 31.
  7. The mortgage interest rate is 8% per year.

Instructions

(a) Journalize the adjusting entries on August 31 for the 3-month period June 1鈥揂ugust 31. (Omit explanations.)

(b) Prepare an adjusted trial balance on August 31.

BE13-7 (L01) Kasten Inc. provides paid vacations to its employees. At December 31, 2017, 30 employees have each earned 2 weeks of vacation time. The employees鈥� average salary is $500 per week. Prepare Kasten鈥檚 December 31, 2017, adjusting entry.

Mayaguez Corporation provides its officers with bonuses based on net income. For 2017, the bonuses total $350,000 and are paid on February 15, 2018. Prepare Mayaguez鈥檚 December 31, 2017, adjusting entry and the February 15,2018, entry.
See all solutions

Recommended explanations on Business Studies Textbooks

Human 91影视

Read Explanation

Startups

Read Explanation

Change Management

Read Explanation

Organizational Communication

Read Explanation

Finance Literacy (Business Studies)

Read Explanation

Organizational Behavior

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.