Problem 1

On January 1, year 1, Camella Company purchased a gas detoxification facility for 5,850,000. The cost of cleaning up the routine contamination caesed by the initial location of gas on the property is estimated to be 975,000. This cost will be incurred in 10 years when all of the existing stockpile of gas is detoxified and the facility is decommissioned. Additional contamination may occur in succeeding years that the facility is in operation. On January 1, year 3, additional contamination clean up cost is estimated at 130,000. The appropriate discount rate is 6%.

The present value of 1 at 6% is 0.63 for 8 periods and 0.56 for 10 periods.

On December 31, year 10, the entity paid a contractor an amount of 1,300,000 for the decommissioning of the detoxification facility.

Required:

1. Prepared journal entries in year 1 in relation to the detoxification facility and decommissioning liability.

2. Prepare journal entries in year 3 in relation to the detoxification facility and decommissioning liability.

3. Prepare journal entries on December 31, year 10 to record the derecognition of the detoxification facility and the settlement of the decommissioning liability.