Question

Carla Company purchases an oil tanker depot on January 1, 2017, at a cost of $627,000. Carla 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 $73,530 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 (considered a plant asset) and the asset retirement obligation for the depot on January 1, 2017. Based on an effective-interest rate of 6%, the present value of the asset retirement obligation on January 1, 2017, is $41,058. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date	Account Titles and Explanation	Debit	Credit
January 1, 2017
	(To record the depot)
January 1, 2017
	(To record the asset retirement obligation)

List of Accounts

Prepare any journal entries required for the depot and the asset retirement obligation at December 31, 2017. Carla uses straight-line depreciation; the estimated salvage value for the depot is zero. (Round answers to 0 decimal places, e.g. 5,275. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date	Account Titles and Explanation	Debit	Credit
December 31, 2017
	(To record depreciation for the depot)
December 31, 2017
	(To record depreciation on asset retirement obligation)
December 31, 2017
	(To record interest on asset retirement obligation)

List of Accounts

On December 31, 2026, Carla pays a demolition firm to dismantle the depot and remove the tanks at a price of $77,690. Prepare the journal entry for the settlement of the asset retirement obligation. (Round answers to 0 decimal places, e.g. 5,275. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date	Account Titles and Explanation	Debit	Credit
December 31, 2026

Answer 1

Requirement-1: Date Account Titles and Explanation Debit Credit $627,000 Jan. 1, 2017 Depot $627,000 Cash To record the depot) $41,058 Jan. 1, 2017 Depot $41,058 Asset Retirement Obligation To record the asset retirement obligation Requirement-2: Account Titles and Explanation Dec. 31, 2017 Depreciation Expense Depot Date Debit Credit I$627,00010 years] $62,700 $62,700 Accum. Depreciation Depot To record depreciation for the depot Dec. 31, 2017 Depreciation Expense - Asset Ret.Obl $4,106 [$41,058 +10 years] Accum. Depreciation - Asset Ret.Obl To record depreciation on asset retirement obligation $4,106 $2,463 [$41,058 x 6%) Dec. 31, 2017 Interest Expense $2,463 Asset Retirement Obligation To record interest on asset retirement obligation

Date Account Titles and Explanation Dec. 31, 2026 Asset Retirement Obligation Debit $73,530 $4,160 Credit [Balancing figure -->$77,690 $73,530] [Balancing figure --> $77,690 Loss on Asset Ret. Obl. settlement Cash $77,690