GlazWorkz International [GWI], Inc., manufactures and supplies glass products for industrial and consumer users all over North America. It set up a new plant costing $37.5 million in Sherbrooke, Quebec on January 1, 2011. Serious concerns for adverse environmental impact had been raised throughout the province. The company hastened to address all of these and assured the community at large that it would take effective measures to minimize all such environmental damages and would eventually restore the site to its natural state. It agreed to bear all costs, both ongoing and future, in order to meet these objectives. The company estimates that it will operate the plant for 25 years acommencing January 1, 2011. GWI uses IFRS, a fiscal year ending December 31 and records all restoration costs to Plant Assets.

All assets are amortized on a straight line basis and on December 31, 2011, it correctly prepared the following journal entry to record the depreciation on its Sherbrooke plant for 2011:

Depreciation expense $1,938,060

Accumulated Amortization - Plant $1,938,060

It also records the interest expense for 2011 as follows:

Interest Expense $876,120

Asset Retirement Obligation

In addition to the information given earlier, now ALSO assume for Questions 33 - 35 that the ongoing production operations requires discharging non-toxic waste water into a nearby lake. The company would have to also undertake the cleanup of the lake waters after the plant ceases its operations. As a result, GWI estimates additional recurring cleanup costs of $420,000 accruing at the end of each year for such cleanup to be paid at the end of the plants 25 year life.

[33] The journal entry required to record ONLY the future cleanup costs from ongoing operations as at December 31, 2011 would be

a.

Manufacturing Overhead DR....$420,000; Asset Retirement Obligation CR....$420,000.

b.

Plant Assets DR....$66,234; Asset Retirement Obligation CR....$66,234.

c.

Cleanup Loss DR....$66,234; Asset Retirement Obligation CR....$66,234.

d.

Manufacturing Overhead DR....$66,234; Asset Retirement Obligation CR....$66,234.

e.

None of the above.

[34] The journal entry required to record ONLY the future cleanup costs from ongoing operations as at December 31, 2011 but assuming GWI was adopting ASPE, would be

a.

Manufacturing Overhead DR....$66,234; Asset Retirement Obligation CR....$66,234.

b.

Manufacturing Overhead DR....$420,000; Asset Retirement Obligation CR....$420,000.

c.

Plant Assets DR....$66,234; Asset Retirement Obligation CR....$66,234.

d.

Cleanup Loss DR....$66,234; Asset Retirement Obligation CR....$66,234.

e.

None of the above.

[35] For [34] above, the depreciation expense to be recorded on December 31, 2012

a.

$1,940,709.

b.

$1,954,860.

c.

$1,955,559.

d.

$1,940,820.

e.

None of the above.