Cheyenne Company purchases an oil tanker depot on January 1, 2020, at a cost of $648,500....

Cheyenne Company purchases an oil tanker depot on January 1, 2020, at a cost of $648,500. Cheyenne expects to operate the depot for 10 years, at which time it is legally required to dismantle the depot and remove the underground storage tanks. It is estimated that it will cost $79,920 to dismantle the depot and remove the tanks at the end of the depot’s useful life.

Prepare the journal entries to record the depot and the asset retirement obligation for the depot on January 1, 2020. Based on an effective-interest rate of 6%, the present value of the asset retirement obligation on January 1, 2020, is $44,627.

Date	Account Titles and Explanation	Debit	Credit
January 1, 2020

	(To record the depot)
January 1, 2020

	(To record the asset retirement obligation)

Prepare any journal entries required for the depot and the asset retirement obligation at December 31, 2020. Cheyenne uses straight-line depreciation; the estimated salvage value for the depot is zero.

Date	Account Titles and Explanation	Debit	Credit
December 31, 2020

	(To record depreciation for the depot)
December 31, 2020

	(To record depreciation on asset retirement obligation)
December 31, 2020

	(To record interest on asset retirement obligation)

On December 31, 2029, Cheyenne pays a demolition firm to dismantle the depot and remove the tanks at a price of $84,200. Prepare the journal entry for the settlement of the asset retirement obligation.

Date	Account Titles and Explanation	Debit	Credit
December 31, 2029

Expert Solution

ekkarill92 answered 2 years ago

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