1. When an asset is purchased, at what amount does a company recognize an asset retirement obligation associated with the asset? Which level of fair value hierarchy would you classify the measurement of asset retirement obligation as?

2. Assuming an asset retirement obligation was record at $70,000 at the time of asset purchase and the actual cost incurred at the time of asset retirement was $105,000, what does the difference of $35,000 represent (tips: 2 items)?

3. BNC Company purchased an oil platform in the Gulf of Mexico for $5,000,000. The estimated cost to dismantle and remove an oil platform at the end of its 10-years useful life is $1,000,000. The present value of the $1,000,000 based on a 10% interest rate is $385,543 (rounded).

a. How much asset retirement obligation should be record at the time of purchase?

b. How much is depreciation expense for the first year?

c. How much is interest expense for the first year?