The comparative statements of Nextext Ltd., an outdoor advertising company, showed the following information: 2017 2018...
The comparative statements of Nextext Ltd., an outdoor advertising company, showed the following information:
| 2017 | 2018 | |
| Retained earnings January 1, 2017 | $4,539,000 | $4352,000 |
| Earnings | 608,400 | 468,100 |
| Dividends | (300,300) | (280,800) |
| Retained Earnings December 31, 2017 | $4,847,100 | $4,539,300 |
In 2018, it came to the attention of Nextest's newly hired financial vice-president that management had re-estimated the cost of removing roof-mounted billboards and restoring the roofs at the end of 2017 but had made no adjustment in that year.
The cost estimates at the end of 2017 had increased by close to 30%, from $426,100 to $553,900. The average remaining period of time before the roof leases expire (and the decommissioning costs are incurred) was 8-years from the end of 2017. Decommissioning cost (i.e., asset retirement obligations) are discounted at a rate of 8%.
Required:
Assume for the purpose of this requirement that 2017 results should be restated. Prepare the journal entry (or entries) necessary to effect the restatement. Nextest's income tax rate is 25%. (Round final answers to the nearest dollar amount)
Homework Answers
| Decommissioning Expenses already considered | A | 4,26,100 |
| Revised Decommissioning Expenses | B | 5,53,900 |
| Incremental Expenses | C = B-A | 1,27,800 |
| Year | Discount Factor | Discounted Amount |
| 2018 | 0.93 | 1,18,333.33 |
| 2019 | 0.86 | 1,09,567.90 |
| 2020 | 0.79 | 1,01,451.76 |
| 2021 | 0.74 | 93,936.82 |
| 2022 | 0.68 | 86,978.53 |
| 2023 | 0.63 | 80,535.68 |
| 2024 | 0.58 | 74,570.07 |
| 2025 | 0.54 | 69,046.36 |
| Particulars | Amount in $ | |
| Property Plant and Equipment | ||
| Decommissioning costs | 69,046.36 | |
| Depreciation | 8,630.80 | |
| Provision for Decommissioning at 1.1.2018 | 69,046.36 | |
| Plus unwinding of discount | 5,523.71 | |
| P&L impact will be | ||
| Depreciation | 8,630.80 | |
| Finance Costs | 5,523.71 | |
| Entries to be passed to the above effect will be as below | ||
| Depreciation A/c Dr | 8,630.80 | |
| To Accumulated Depreciation A/c | 8,630.80 | |
| Finance costs (Unwinding Expenses) A/c Dr | 5,523.71 | |
| To Provision for decommissioning | 5,523.71 | |
| Particulars | Amt in $ | |
| 2017 | 2018 | |
| Retained Earnings Jan 1 2017 | 45,39,000 | 43,52,000 |
| Earnings | 6,08,400 | 4,68,100 |
| Impact of Restatement on Decommissioning Expenses | ||
| Depreciation | 8,631 | 8,631 |
| Finance Costs | 5,524 | 5,524 |
| Tax impact | 3,539 | 3,539 |
| Dividends | -3,00,300 | -2,80,800 |
| Retained earnings Dec 31 2017 | 48,29,407 | 45,21,607 |
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The comparative statements of Nextext Ltd., an outdoor
advertising company, showed the following information:
2017
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