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).

1. Provide all necessary journal entries for 12/31/2025. Assume that the entity settles its asset retirement obligation by incurring decontamination costs of $7M and disposing the plant and land for $8M. (3 Journal Entries):