Bassinger Company purchases an oil tanker depot on January 1, 2019, 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 end of the depot's useful life.
Instructions
a. Prepare the journal entries to record the depot and the environmental liability for the depot on January 1, 2019. Based on an effective-interest rate of 6%, the fair value of the environmental liability on January 1, 2019, is $39,087.
b. Prepare any journal entries required for the depot and the environmental liability at December 31, 2019. Bassinger uses straight-line depreciation; the estimated residual value for the depot is zero.
c. On December 31, 2028, 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 environmental liability.