MyTee had acquired a tract of land in Northern Quebec to be the site for setting up its New Products Testing Laboratory. The testing procedures required the use of a set of large equipment erected on open land and the company decided that this acquisition would ideally serve its purposes. The acquisition was on a 20-year lease with a requirement that MyTee would eventually be responsible for dismantling and removing all installations, and restoring the site to its original environmental condition before or at the end of the lease term of the land. The equipment was acquired at a cost of $9,000,000 with a 15-year expected life and no residual value.

The company commenced its operations on January 1, 2011 and recorded an amount of $456,969 as the present value of the future restoration costs. On December 31, 2011, it recorded an amount of $22,848.50 as interest expense on the asset restoration obligation. All assets are depreciated using the straight-line method.

Next, assume that you are NOW at January 1, 2026 and the company is seeking to dismantle all its used equipment and restore the land on which these were installed. The company had earlier, in November, 2025, invited bids for the upcoming restoration. It negotiated terms with Rebild Contractors, Inc., for the job whereby it would issue 5% $1,100,000 five-year bonds with interest payable on December 31. The job commenced on January 1, 2026 and the bonds were issued on the same date with the market rate being 6%.

Required:

1. Determine the annual discount rate used for this transaction.

2. Determine the estimated future cost of the restoration to be incurred at the end of the life of the equipment.

3. Determine the depreciation expense for 2011 to be recorded on December 31, 2011.

4. Prepare the journal entry required to record the settlement of the Asset Retirement Obligation.

[HINT: You will need to compute the issue price of the bonds on January 1, 2026].