The company used the proceeds of the instruments issued to explore a property that it is now
Question:
The company used the proceeds of the instruments issued to explore a property that it is now determined has a major source of oil. Early in 2020 the company commenced the erection of a drilling platform which was completed by July 1, 2020. In the agreement with the owner of the property, Northern has agreed to dismantle the and remove the platform returning the property to it’s original condition. It is estimated that the cost of dismantling will amount to $8,400,000 when the drilling is completed in 10 years. Northern estimates that 80% of the cost of dismantling and removing the platform is caused by acquiring the asset itself, and the remaining 20% of the cost is caused by using the platform in production. Comparable projects are measured using a capital rate of 5% and Northern uses the straight-line method of depreciation. It is estimated that production will commence in 2021.
Prepare the journal entries and discusses the recognition, measurement, and presentation of the financial instruments issued.
Fundamentals of Financial Management
ISBN: 978-0324664553
Concise 6th Edition
Authors: Eugene F. Brigham, Joel F. Houston