Question

Cheyenne Company purchases an oil tanker depot on January 1, 2020, at a cost of $616,400....

Cheyenne Company purchases an oil tanker depot on January 1, 2020, at a cost of $616,400. Cheyenne 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 $74,390 to dismantle the depot and remove the tanks at the end of the depot’s useful life.

On December 31, 2029, Cheyenne pays a demolition firm to dismantle the depot and remove the tanks at a price of $87,800. Prepare the journal entry for the settlement of the asset retirement obligation. (Round answers to 0 decimal places, e.g. 5,275. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

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Answer:
Preparation of journal Entry
Date Accounts Title and Explanation Debit
(in $ millions)		 Credit
(in $ millions)
Dec - 31, 2029 Asset Retirement Obligation $74,390
Loss on Asset Retirement obligation (ARO) settlement (Bal Fig) $13,410
                 Cash $87,800
(To record the settlement of the asset retirement obligation)
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