On January 1, 2017, Nash Ltd. purchased the right to extract oil from proved oil reserves on provincial government land. It paid $1,000,000 for production equipment and debited the "Production Equipment" account for the purchase price. Operations began on that day, and the agreement provided for three years of operations (until December 31, 2019), at which time it was estimated the oil reserves would be exhausted. Nash 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. 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, Nash's engineers and accountants estimated that the total cost to clean up the site on December 31, 2019 would total $366,000, and the discount rate to be applied to that future cost would be 8%. (Note: clean-up costs are also being debited to "Production Equipment". On December 31, 2019, a contractor was paid $358,000 to clean up the site, and in January 2020 the site was closed. Nash's fiscal year end was December 1, and the company followed ASPE. 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 to be prepared): January 1, 2017 December 31, 2017 .December 31, 2018 December 31, 2019 (Round answer to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when the amount is entered. Do not indent manually. 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 Date Account Titles and Explanation Debit Credit Jan. 1, 2017 Production Equipment 1000000 Asset Retirement Obligation 366000 1360 Cash (To record acquisition of the production equipment and asset retirement obligations.) 29280 Dec. 31, 2017Accretion Expense 29280 Asset Retirement Obligation (To record accretion for the asset retirement obligation.) 455333 Depreciation Expense Accumulated Depreciation - Production Equipment 455333 (To record depreciation for the production equipment.) Dec. 31, 2018 Accretion Expense 31622 Asset Retirement Obligation 31622 (To record accretion for the asset retirement obligation.) 455333 Depreciation Expense 455333 Accumulated Depreciation Production Equipment (To record depreciation for the production equipment.) Dec. 31, 2019 Accretion Expense 34152 Asset Retirement Obligation 34152 (To record accretion for the asset retirement obligation.) 455333 Depreciation Expense 455333 Accumulated Depreciation - Production Equipment (To record depreciation for the production equipment.) Asset Retirement Obligation Production Equipment 8000 cash 358000 To record settlement of the asset retirement obligation.)
