Question 12

SheffieldProcesses is involved with innovative approaches to finding energy reserves.Sheffieldrecently built a facility to extract natural gas at a cost of $12.1million. However,Sheffieldis also legally responsible to remove the facility at the end of its useful life of twenty years. This cost is estimated to be $15million (the present value of which is $6.2million). What is the journal entry required to record the asset retirement obligation?

a) No journal entry required.

b) Debit Natural Gas Facility for $2900000and credit Asset Retirement Obligation for $2900000.

c) Debit Natural Gas Facility for $15000000and credit Asset Retirement Obligation for $15000000.

d) Debit Natural Gas Facility for $6200000and credit Asset Retirement Obligation for $6200000.