Questions -
1. Calaf's Drillers erects and places into service an offshore oil platform on January 1, 2013, at a cost of $10,375,000. Calaf is legally required to dismantle and remove the platform at the end of its useful life in 10 years. Calaf estimates it will cost $1,037,500 to dismantle and remove the platform at the end of its useful life in 10 years. (The fair value at January 1, 2013, of the dismantle and removal costs is $466,875).
Required: Prepare the entry to record the asset retirement obligation. Use Oil Platform as an account title.
2. Foreman Company issued $800,000 of 10%, 20-year bonds on January 1, 2013 at 102. Interest is payable semiannually on July 1 and January 1. Foreman Company uses the effective interest method of amortization for bond premium or discount. Assume an effective yield of 9.7705%.
Required: Prepare the journal entries to record the following:
a. The issuance of the bonds
b. The payment of interest and related amortization on July 1, 2013.
c. The accrual of interest and the related amortization on December 31, 2013.