Present value of the asset retirement obligation

Reference no: EM13257219

Oil Products Company purchases an oil tanker depot on January1, 2007, at a cost of $600,000. Oil Products expects to operate thedepot for 10 years, at which time it is legally required todismantle the depot and remove the underground storage tanks. It isestimated that it will cost $75,000 to dismantle the depot andremove the tanks at the end of the depot's useful life.

Instructions:

(Round all answers to 0 decimal places. For multipledebit/credit entries, list in order of magnitude.)

(a) Prepare the journal entries to record the depot and theasset retirement obligation for the depot on January 1, 2007. Basedon an effective interest rate of 6%, the present value of the asset retirement obligation on January 1, 2007, is $41,879.

Reference no: EM13257219

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