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429 Asset Retirement Obligation Homework Name Holmes Inc. is required by law to dispose of toxic waste in a safe and environmentally responsible manner. Equipment
429 Asset Retirement Obligation Homework Name Holmes Inc. is required by law to dispose of toxic waste in a safe and environmentally responsible manner. Equipment was purchased for $800,000 on 1-1-17. Zero salvage value and a 2-year life are estimated for straight-line depreciation. The equipment must be disposed of in an environmentally safe manner at the end of the useful life. Expected cash flows for removal are: $80 000 is 20% probable; S 100,000 is 30% probable; and $120,000 is 50% probable. A. Calculate the amount of the asset retirement obligation to be recorded now if the credit- adjusted-risk free rate is 8%. B. Ignoring your answer to Part A, assume that the asset retirement obligation is $80,000. Record any entries for 2017 and 2018 assuming a December 31 year end. C. On 1-12-19 an outside contractor removes the equipment at a cost of $72,000. Record any necessary entries using the information in Part B
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