Acct 3342 Ch 13 Review Exercises Fall 2011

Acct 3342 Ch 13 Review Exercises Fall 2011 - Chapter 13...

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Chapter 13 - Review Exercises E - 13, 17, 18, 22 EXERCISE 13-13 (25-35 minutes) (a) July 2, 2011 Oil Tanker Depot 600,000 Cash 600,000 Oil Tanker Depot 41,879 Asset Retirement Obligation 41,879 (b) December 31, 2011 Depreciation Expense 32,094 Accumulated Depreciation – Oil Tanker Depot 32,094 ($600,000 + $41,879) ÷ 10 X 6/12 Accretion Expense 1,256 Asset Retirement Obligation 1,256 ($41,879 X 6% X 6/12) (c) June 30, 2021 Asset Retirement Obligation 75,000 Loss on Settlement of Asset Retirement Obligation 5,000 Cash 80000
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(d) Year Beg. Carrying Amount Accretion Expense (6%) Ending Carrying Amount 2012 41,879.00 2,512.74 44,391.74 2013 44,391.74 2,663.50 47,055.24 2014 47,055.24 2,823.31 49,878.55 2015 49,878.55 2,992.71 52,871.26 2016 52,871.26 3,172.28 56,043.55 2017 56,043.54 3,362.61 59,406.15 2018 59,406.15 3,564.37 62,970.52 2019 62,970.52 3,778.23 66,748.75 2020 66,748.75 4,004.93 70,753.68 2021 70,753.68 4,245.22 74,998.90 (e) Balance Sheet: Property, Plant, and Equipment: Oil Tanker Depot $641,879 Less: Accumulated Depreciation 32,094 609,785 Long-term Liabilities: Asset Retirement Obligation 43,135 ($41,879 + $1,256) Income Statement: Operating Expenses Depreciation Expense 32,094 Accretion Expense 1,256 (f) The accretion expense is a non-cash expense. It would be omitted from cash from operations in the statement of cash flows prepared using the direct method. It would be added back to net income in the statement prepared using the indirect method.
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EXERCISE 13-13 (Continued) (g) The IFRS considers that only half of the ultimate costs are caused by the acquisition of the property, and if no production were carried out, only $37,500 would need to be spent to remediate the site at the end of the 10-year period. However, as production proceeds, further damage is done and the costs of clean-up associated with the additional damage caused by production have to be recognized in the liability account. The associated costs are recognized as production costs, similar to other production costs. Because production does not even begin until July 1, 2011, there is no liability associated with the production activities until December 31, 2011, the company’s year end. Therefore, there is no accretion recorded for the July 1 to December 31, 2011 period. However, on December 31, the costs of remediation caused by the July to December production are recognized as production costs and the first of the entries to the ARO for the production activities is made. Under IFRS assuming the ARO related 50% to acquisition and 50% to the subsequent production: The July 1/11 entry to acquire the oil tanker depot would be the same as under PE GAAP. Instead of capitalizing the full $41,879 in the oil tank depot account, only ½ X $41,879 or $20,940 would be capitalized at July 1/11. The depreciation expense for the six months ended December 31/11 would be ($600,000
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Acct 3342 Ch 13 Review Exercises Fall 2011 - Chapter 13...

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