CHI 120 Lecture Notes - Lecture 4: Ampersand

You are an in-house staff accountant at Ocean Petroleum, Inc.(OPI), a publicly traded company with a calendar year-end. OPI hasrecently expanded its land-based operations to include constructingand operating offshore oil platforms. OPI’s first offshore platformbegan operating off the coast of Alaska on January 1, 2017. Thetotal capitalized cost of constructing the platform was$100,000,000 and the deep water drilling rig will be depreciatedusing straight-line over its useful life of 10 years. As a resultof legislation following the 2010 BP oil spill, OPI is required todismantle and remove the platform at the end of its useful life.OPI currently estimates that it will cost approximately $2,158,932to dismantle the platform in ten years. OPI’s current cost ofcapital is 8%.

Walt Grimwald, OPI’s Chief Financial Officer (CFO), hasextensive experience in retail auto dealerships but is new to theoil and gas industry. He is very familiar with car warranties but,as he told you in your meeting with him today, he is “unsure how tohandle this warranty to dismantle the drilling rig.” He hasrequested you analyze whether OPI must account for this expectedfuture cost in 2017 or at the end of 2026 when the platform will bedismantled.

Grimwald has also expressed concern over making futureestimates, especially labor. Even though these estimates arereasonable enough for accounting purposes, it has been Grimwald’sexperience with auto warranties that estimates are just that –estimates. He would prefer not to book any additionalexpenses in 2017 because OPI is just barely expected to meet WallStreet’s earnings forecast. Therefore, he would like to wait until2026 or some other future year and obtain a more accurate cost ofdismantling and removing the platform. Grimwald strongly believesthat this will result in more reliable financial statements.

Grimwald would like you to write a “short memo” explaining youranalysis of the issue he has presented to you. Grimwald isdata-driven. He likes spreadsheets and is especially fond ofjournal entries. Therefore, you will need to support your advicewith a schedule - for Accounting 351 only; the schedule canbe excluded in your subsequent 351COM submission. Grimwaldalso likes his staff accountants to communicate their criticalanalysis of such financial accounting problems, so be sure to offeran analysis in which relevant FASB ASC standards are applied tofacts to support your analysis..

Learning Objectives

· Research, analyze, interpret, and apply the relevant FASB ASCstandards to a set of facts to offer supportable conclusions andrecommendations.

· Effectively communicate analysis in a clear, concise,well-organized internal memorandum (“memo”) containing propercitation.

Writing Task: Memo to be submitted inboth ACCT351 and ACCT 351COM

Based on your research and analysis, prepare a one-page memo inyour role as an Staff Accountant to Walt Grimwald, CFO, as he hasrequested. Along with the appropriate in-text citations, pleaselist your references on a separate page attached to your memo (Page2).

Your memo should offer your analysis supporting your conclusionsand recommendation that Grimwald has requested (see above). Pleaseremember to prepare a schedule for submission in Accounting 351only. The memo, plus reference page, is to be submitted in bothAccounting 351 and 351COM.

Format and Submission

Your memo must follow the CSUN Memo Format, available inAppendix B of the 351COM Student Manual available on the 351COMcourse Moodle page. Based on the facts given above, the headingshould include the name and title of the recipient, your name andtitle, the date (memo’s due date) and a subject that uses key wordsto accurately phrase the topic of your memo with sufficientspecificity and conciseness.

As noted above, please list your references on a separate page(Page 2) attached to your memo.

For 351COM, please submit your memo both to the Case MemoTurnitin link on the 351COM course Moodle page, and in hard (paper)copy in class in ACCT 351COM on Monday, April 17at 7 p.m. with the 351COM Case Assignment Rubric attached.

In submitting your memo in ACCT 351 on the date set by your ACCT351 professor, please follow any additional requirements set forthby your ACCT 351 professor.

Can you help me with the schedule and journal entries? (Ialready provided the case)