Question

Calaf’s Drillers erects and places into service an off-shore oil platform on January 1, 2018, at a cost of $10,000,000. Calaf is legally required to dismantle and remove the platform at the end of its useful life in 10 years. Calaf estimates it will cost $1,000,000 to dismantle and remove the platform at the end of its useful life in 10 years. (The fair value at January 1, 2018, of the dismantle and removal costs is $450,000.) Prepare the entry to record the asset retirement obligation. (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.)

Answer 1

Answer:

oil plataform     450,000 debit

  ARO liability oil Plataform      450,000 credit

Explanation:

We will recognize the ARO at fair value, and then recongize an interest expense each year to make his balance equal to 1,000,000

The ARO will be capitalized into the oil plataform long-term assets

and depreciate over the past of time.