On January 1, 2020, Vaughn Ltd. purchased the right to extract oil from proven oil reserves...

 

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On January 1, 2020, Vaughn Ltd. purchased the right to extract oil from proven oil reserves on provincial government land. It paid $900,000 for production equipment and debited the "Equipment" account for the purchase price. Operations began on that day, and the agreement provided for three years of operations (until December 31, 2022), at which time it was estimated the oil reserves would be exhausted. Vaughn 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, with no residual or salvage value. 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, Vaughn's engineers and accountants estimated that the total cost to clean up the site on December 31, 2022 would total $350,000, and the discount rate to be applied to that future cost would be 8%. (Note: clean-up costs are also being debited to "Equipment"). On December 31, 2022, a contractor was paid $345,000 to clean up the site, and in January 2023 the site was closed. Vaughn's fiscal year end was December 31, 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, 2020 Use (a) factor Table A.2, (b) a financial calculator, or (c) Excel function PV. December 31, 2020 December 31, 2021 December 31, 2022 (Round answer to O decimal places, eg. 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 (To record acquisition of the production equipment and asset retirement obligations.) (To record accretion expense.) (To record depreciation for the production equipment.) (To record accretion expense.) (To record depreciation for the production equipment.) (To record accretion expense.) (To record depreciation for the production equipment.) (To record settlement of asset retirement obligation.) On January 1, 2020, Vaughn Ltd. purchased the right to extract oil from proven oil reserves on provincial government land. It paid $900,000 for production equipment and debited the "Equipment" account for the purchase price. Operations began on that day, and the agreement provided for three years of operations (until December 31, 2022), at which time it was estimated the oil reserves would be exhausted. Vaughn 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, with no residual or salvage value. 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, Vaughn's engineers and accountants estimated that the total cost to clean up the site on December 31, 2022 would total $350,000, and the discount rate to be applied to that future cost would be 8%. (Note: clean-up costs are also being debited to "Equipment"). On December 31, 2022, a contractor was paid $345,000 to clean up the site, and in January 2023 the site was closed. Vaughn's fiscal year end was December 31, 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, 2020 Use (a) factor Table A.2, (b) a financial calculator, or (c) Excel function PV. December 31, 2020 December 31, 2021 December 31, 2022 (Round answer to O decimal places, eg. 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 (To record acquisition of the production equipment and asset retirement obligations.) (To record accretion expense.) (To record depreciation for the production equipment.) (To record accretion expense.) (To record depreciation for the production equipment.) (To record accretion expense.) (To record depreciation for the production equipment.) (To record settlement of asset retirement obligation.)

Answer rating: 100% (QA)

Particulars Amount Cost of the Equipment 900000 PV of Obligation 350000PVF83Y35000... View the full answer