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Prepare the journal entries to record the acquisition

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Reference no: EM133103996

Question - Crude Oil Limited purchased an oil tanker depot on July 2, 2021, at a cost of $600,000 and expects to operate the depot for 10 years. After 10 years, Crude Oil is legally required to dismantle the depot and remove the underground storage tanks. It is estimated that it will cost $75,000 to do this at the end of the depot's useful life. Crude Oil follows ASPE.

Required -

(a) Prepare the journal entries to record the acquisition of the depot and the accrual for the asset retirement obligation for the depot on July 2, 2021. An appropriate interest rate is 8%.

(b) Prepare any journal entries required for the depot and the asset retirement obligation on December 31, 2021. Crude Oil uses straight-line depreciation. The estimated residual value of the depot is zero.

(c) Show how all relevant amounts will be reported on Crude Oil Limited's financial statements at December 31, 2021.

(d) On June 30, 2031, Crude Oil pays a demolition firm to dismantle the depot and remove the tanks at a cost of $80,000. Prepare the journal entry for the settlement of the asset retirement obligation.

(e) How would the accretion expense be reported on the statement of cash flows?(f)  How would your accounting treatment differ if the company used IFRS rather than ASPE? You can answer this using two to three sentences.

Reference no: EM133103996

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