On January 1 of the current year Wright Oil invested #3148

On January 1 of the current year, Wright Oil invested $ 7,500,000 to construct an offshore oil
platform, and paid cash. As part of its offshore drilling agreement, Wright is responsible for
dismantling and removing the platform at the end of its 15- year useful life. Wright depreciates
the platform by using the straight- line method with no residual value expected at the end of its
useful life. The asset did not have a reasonably determinable quoted market price and market
comparables are not available. As a result, Wright decided to use a probability- based estimate
of the cost of dismantling and removing the platform to estimate the fair value of the retirement
obligation. The probability- based estimate employs the expected cash flows needed to comply
with the offshore drilling agreement based on costs of dismantling and removal in today’s
market. The estimated values are as follows:Estimated Future Cash Flows Probability of
Occurrence$ 675,000 ………………………………….. 62%$ 890,000 …………………………………..30%$
………………………………….. 8%The company’s estimated cost of capital is 6%.Requireda. Prepare the
journal entries required to record the investment in the offshore oil platform. b. Prepare the
journal entry to record the first year’s depreciation and accretion accrual. c. Prepare the journal
entries required to record the disposal of the asset and the settlement of the asset retirement
obligation at the end of the eighth year after acquisition. Wright sold the asset for $ 980,000 and
the costs of dismantling and removing the offshore oil platform totaled $ 1,200,000.View
Solution:
On January 1 of the current year Wright Oil invested

ANSWER
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