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Prepare journal entries required for the platform

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Reference no: EM132518709

On January 1, 2020, Bridgeport Corporation erected a drilling platform at a cost of $4,804,800. Bridgeport is legally required to dismantle and remove the platform at the end of its 6 year useful life, at an estimated cost of $836,000. Bridgeport estimates that 70% of the cost of dismantling and removing the platform is caused by acquiring the asset itself, and that the remaining 30% of the cost is caused by using the platform in production. The present value of the increase in asset retirement obligation related to the production of oil in 2020 and 2021 was $28,449 and $30,724, respectively. The estimated residual value of the drilling platform is zero, and Bridgeport uses straight-line depreciation. Bridgeport prepares financial statements in accordance with IFRS.

Question 1: Prepare the journal entries to record the acquisition of the drilling platform, and the asset retirement obligation for the platform, on January 1, 2020. An appropriate interest or discount rate is 8%. Use (1) factor Table A.2, (2) a financial calculator, or (3) Excel function PV in your calculations.

Question 2: Prepare journal entries required for the platform and the asset retirement obligation at December 31, 2020.

Question 3: Prepare journal entries required for the platform and the asset retirement obligation at December 31, 2021.

Question 4: Assume that on December 31, 2025, Bridgeport dismantles and removes the platform at a cost of $811,360. Prepare the journal entry to record the settlement of the asset retirement obligation. Also assume its carrying amount at that time is $836,000.

Question 5: Prepare the journal entries to record the acquisition of the drilling platform, and the asset retirement obligation for the platform, on January 1, 2020, assuming that Bridgeport prepares financial statements in accordance with ASPE. An appropriate interest or discount rate is 8%.

Question 6: Prepare journal entries required for the platform and the asset retirement obligation at December 31, 2020, assuming that Bridgeport prepares financial statements in accordance with ASPE.

Explain with calculation.

Reference no: EM132518709

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