Oil Products Company purchases an oil tanker depot on January 1, 2020, at a cost of $600,000. Oil Products 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 $75,000 to dismantle the depot and remove the tanks at the end of the depot's useful life. Instructions: (a) 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 $41,879.(b) Prepare any journal entries required for the depot and the asset retirement obligation at December 31, 2014. Oil Products uses straight-line depreciation; the estimated salvage value for the depot is zero.

A. Dr Plant Assets 600,000

Cr Cash 600,000

Dr Plant Assets 41,879

Cr Asset Retirement Obligation 41,879

B. Dr Depreciation Expense 60,000

Cr Accumulated Depreciation - Plant Assets 60,000

Dr Depreciation Expense 4,188

Cr Accumulated Depreciation - Plant Assets 4,188

Dr Interest Expense 2,513

Cr Asset Retirement Obligation 2,513

Explanation:

(a) Preparation of the journal entries to record the depot and the asset retirement obligationon at the beginning of the year 2020 which is January 1, 2020

Dr Plant Assets 600,000

Cr Cash 600,000

Dr Plant Assets 41,879

Cr Asset Retirement Obligation 41,879

(b) Preparation of any journal entries that is required for the depot and the asset retirement obligation at the end of the year which is December 31

Dr Depreciation Expense 60,000

(600,000/10 years)

Cr Accumulated Depreciation - Plant Assets 60,000

Dr Depreciation Expense 4,188

Cr Accumulated Depreciation - Plant Assets 4,188

($41,879/10 years)

Dr Interest Expense 2,513

Cr Asset Retirement Obligation 2,513

(6%×$41,879)

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