In January 20XX, Sea Oil Inc. builds and begins operating an oil drilling platform in the Gulf of Mexico. The company expects to operate the platform for 12 years and will be required to remove the platform at the end of 12 years at an expected cost of $20,000,000. Assuming that the discount rate is 6%. (present value tables on last page)

a. Prepare the journal entry to record the asset retirement obligation (ARO) in January 20XX

b. Prepare the journal entry to record the annual depreciation in 20XX and adjustment to the ARO (interest expense).

c. Assume that at the end of 12 years, it costs the company $20,185,000 to remove the platform. Prepare the entry (assume payment is in cash).

Account Name

DR

CR