On January 1, 2016, Barbosa Company purchased a coal mining site for $1,000,000. Under the terms of the purchase agreement, Barbosa must restore the site to specified conditions at an estimated cost of $125,000. Barbosa estimates that it will be able to operate the site for 20 years. Barbosa uses a 6% discount rate and a straight-line method of depreciation.

	Required:
1.	Prepare the journal entry necessary to record the purchase of the coal mining site.
2.	Prepare any journal entries needed at December 31 with regard to this mining site.
3.	Next Level What is the conceptual justification that underlies the accounting for an asset retirement obligation?

Chart of Accounts

CHART OF ACCOUNTS

Barbosa Company

General Ledger

	ASSETS
111	Cash
121	Accounts Receivable
141	Inventory
152	Prepaid Insurance
188	Coal Mine
198	Accumulated Depreciation

	LIABILITIES
211	Accounts Payable
231	Salaries Payable
250	Unearned Revenue
261	Income Taxes Payable
299	Asset Retirement Obligation

	EQUITY
311	Common Stock
331	Retained Earnings

	REVENUE
411	Sales Revenue

	EXPENSES
500	Cost of Goods Sold
511	Insurance Expense
512	Utilities Expense
521	Salaries Expense
531	Depreciation Expense
532	Bad Debt Expense
533	Accretion Expense
559	Miscellaneous Expenses

General Journal

Shaded cells have feedback.

Prepare the journal entry necessary to record the purchase of the coal mining site on January 1. Round to the nearest dollar.

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PAGE 14

GENERAL JOURNAL

Score: 22/37

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2
3

Points:

4.16 / 7

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Check My Work

Prepare the journal entries on December 31 to record year-end adjustments related to the coal mine. Round to the nearest dollar.

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PAGE 14

GENERAL JOURNAL

Score: 17/51

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2
3
4

Points:

3.33 / 10