Question
Green Thumb International [GTI], Inc ., constructs and operates garbage recycling plants all over North America. It set up and began operating a new plant
Green Thumb International [GTI], Inc., constructs and operates garbage recycling plants all over North America. It set up and began operating a new plant costing $12.5 million with no residual value in Sherbrooke, Quebec on January 1, 2011. The province requires all companies to return the land to its natural state at the end of their operations activity. GTI estimates that it will operate the plant for 25 years and agrees to bear the restoration cost. GTI uses IFRS, fiscal year ending December 31 and records all restoration costs to Plant Assets.
GTI amortizes its assets on a straight line basis and on December 31, 2011, correctly prepared the following journal entry to record the depreciation on its Sherbrooke plant for 2011:
Depreciation expense $646,020
Accumulated Amortization - Plant $646,020
It also records the interest expense for 2011 as follows:
Interest Expense $292,040
Asset Retirement Obligation $292,040
1) Determine the amount recorded by GTI on January 1, 2011, for the restoration of the property in the future.
a. $3,650,500.
b. $91,262,500.
c. $533,046.
d. $13,326,150.
e. None of the above.
2) Determine the annual interest rate used by GTI to discount the future cost of restoration.
a. 4% per annum.
b. 8% per annum.
c. 0.32% per annum.
d. 14.6% per annum.
e. None of the above.
3) 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....$22,078; Asset Retirement Obligation CR....$22,078.
b. Manufacturing Overhead DR....$140,000; Asset Retirement Obligation CR....$140,000.
c. Plant Assets DR....$22,078; Asset Retirement Obligation CR....$22,078.
d. Cleanup Loss DR....$22,078; Asset Retirement Obligation CR....$22,078.
e. None of the above.
4) The journal entry required to record ONLY the future cleanup costs from ongoing operations as at December 31, 2011 but assuming GTI was adopting ASPE, would be
a. Manufacturing Overhead DR....$22,078; Asset Retirement Obligation CR....$22,078.
b. Manufacturing Overhead DR....$140,000; Asset Retirement Obligation CR....$140,000.
c. Plant Assets DR....$22,078; Asset Retirement Obligation CR....$22,078.
d. Cleanup Loss DR....$22,078; Asset Retirement Obligation CR....$22,078.
e. None of the above.
5) For [4] above, the depreciation expense to be recorded on December 31, 2012
a. $646,903.
b. $651,620.
c. $651,853.
d. $646,940.
e. None of the above.
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