ASC 410 -20 - Asset Retirement Obligations: Problem

Fairfax Inc. is legally responsible for decontamination procedures associated with operating a chemical plant it

acquired on January 1, 2001 for $60,000,000.The acquisition cost was attributed as follows:$54,000,000 for the

plant and $6,000,000 for the land.The future cash flows for decontamination were analyzed and estimated to be

$6,772,780. The credit-adjusted risk-free rate is 5%. The expected useful life of the plant is 25 years.At the end of

its useful life and after decontamination, the plant should be worth $4,000,000 (not including the value of the land).

Fairfax uses straight-line method to depreciate buildings and manufacturing facilities.

1.What amount of depreciation expense should be recognized for 2001? $_____________

2.What amount will be recognized as accretion expense for 2001? $_____________

3.What is the ending balance in the asset retirement obligation on 12-31-01?$_____________

4.What amount will be recognized as accretion expense for 2002? $_____________

5.What is the ending balance in the asset retirement obligation on 12-31-02? $ ____________

6.Provide all necessary journal entries for 2001 (3 Journal Entries):