Refer to part (a) of problem P12-43. At the beginning of Year 6, JOI determined that the appropriate market-based interest rate for this obligation was 5%. JOI depreciates the asset on a straight-line basis.

P12-43 part (a)

Jane’s Oil Inc. (JOI) installed an offshore oil drilling platform. The terms of the government’s approval to drill requires JOI to dismantle and remove the platform upon completion of drilling. JOI estimates that it will take eight years to exhaust the proven reserves of oil at the site. Dismantling and removal costs are estimated to be $3 million. An appropriate interest rate for this obligation is 4%.

Required:
a. Prepare a journal entry to record the change in the liability amount.
b. Prepare a journal entry to record depreciation expense at the end of Year 6 on the asset related to site restoration costs.