BE$9\mathrm{.}2($L$01)$ Schultz Department Store determines it will cost $$100,000$ to restore the area $($considered a land improvement$)$ surrounding one of its store parking lots, when the store is closed in $2$ years. Schultz estimates the fair value of the obligation at December $31,2025,$ is $$84,000.$ Prepare the journal entry to record the asset retirement obligation.

E$9\mathrm{.}5($LO $1)($Asset Retirement Obligation$)$ Oil Products Company purchases an oil tanker depot on January $1,2025,$ at a cost of $$600,000.$ Oil Products expects to operate the depot for $10$ years, at which time it is legally required to dismantle the depot and remove the underground storage tanks. The company estimates the dismantle and removal will cost $$75,000$ at the end of the depot's useful life.

Instructions

a$.$ Prepare the journal entries to record the depot and asset retirement obligation for the depot on January $1,2025.$ Based on an effective$-$interest rate of $6\%,$ the present value of the asset retirement obligation on January $1,2025,$ is $$41,879.$

b$.$ Prepare any journal entries required for the depot and the asset retirement obligation at December $31,2025.$ Oil Products uses straight$-$line depreciation; the estimated salvage value for the depot is zero.

c$.$ On December $31,2034,$ Oil Products pays a demolition firm to dismantle the depot and remove the tanks at a price of $$80,000.$ Prepare the journal entry for the settlement of the asset retirement obligation.