Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

On January 1 , 2 0 2 3 , BLS Ltd . purchased the right to extract oil from proven oil reserves on provincial government

On January 1,2023, BLS Ltd. purchased the right to extract oil from proven oil reserves on provincial government land. It paid
$1,200,000 for production equipment and debited the "Equipment" account for the purchase price. Operations began on that day, and
the agreement provided for three years of operations (until December 31,2025), at which time it was estimated the oil reserves would
be exhausted. BLS planned to extract the oil evenly over the three-year period and therefore decided to depreciate the cost of the
equipment using the straight-line method, with no residual or salvage value. Included in the agreement with the government was a
provision that the business would clean up the site at the end of the three years. On the date of purchase, BLS's engineers and
accountants estimated that the total cost to clean up the site on December 31,2025 would total $392,000, and the discount rate to be
applied to that future cost would be 8%.(Note: clean-up costs are also being debited to "Equipment"). On December 31,2025, a
contractor was paid $383,600 to clean up the site, and in January 2026 the site was closed. BLS's fiscal year end was December 31, and
the company followed ASPE.
Click here to view the factor table.
Click here to view the factor table.
Prepare the required journal entries for each of the following dates, using the expense approach. (Note: no inventory or sales related
journal entries are required):
January 1,2023 Use (a) factor Table A.2,(b) a financial calculator, or (c) Excel function PV.
December 31,2023
December 31,2024
December 31,2025
(Round present value factor calculations to 5 decimal places, eg.0.52750 and round answers to 0 decimal places, e.g.5,275. Credit account
titles are automatically indented when the amount is entered. Do not indent manually. List all debit entries before credit entries. If no entry is
required, select "No Entry" for the account titles and enter O for the amounts. Record journal entries in the order presented in the problem.)
Debit
Credit
(To record accretion expense)
(To record depreciation for the production equipment)
image text in transcribed

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Accounting An Integrated Statements Approach

Authors: Jonathan E. Duchac, James M. Reeve, Carl S. Warren

2nd Edition

324312113, 978-0324312119

More Books

Students also viewed these Accounting questions

Question

3. Why does the aggregate demand curve slope downward? LOP8

Answered: 1 week ago