Posted: August 4th, 2016

Prepare the journal entry for the settlement of the asset retirement obligation?

Bassinger Company purchases an oil tanker depot in 1/1/12, at a cost of $600,000. Bassinger 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. It is estimated that it will cost $70,000 to dismantle the depot and remove the tanks at the of the depot’s useful life.

a). Prepare the journal entries to record the depot (considered a plant asset) and the asset retirement obligation for the depot on 1/1/12. Based on an effective-interest rate of 6%, the fair value of the asset retirement obligation on 1/1/12, is $39,087.

b). Prepare the journal entries required for the depot and asset retirement obligation at 12/31/12. Bassinger uses straight-lime depreciation; the estimated residual value for the depot is 0.

c). On 12/31/12. Bassinger 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.

Premiums

1. Marquart Stamp Company records stamp service revenue and provides for the cost of redemptions in the year stamps are sold to licensees. Marquart’s past experience indicates that only 80% of the stamps sold to licensees will be redeemed. Marquart’s liability for stamp redemptions was $13,000,000 at December 31, 2009. Additional information for 2010 is as follows:

-Stamp service revenue from stamps sold to licenses $9,500,000
-Cost of redemptions (stamps sold prior to 1/1/12) $6,000,000

If all the stamps sold in 2010 were presented for redemption in 2011, the redemption cost would be $5,200,000. What amount should Marquart report as a liability for stamp redemptions at December 31, 2010?