Refer to the illustration p. 13-25 involving an asset retirement obligation.How is the $620,920 amount determined?What type of account is Asset Retirement Obligation?What type of account is debited when the retirement obligation is initially recorded?What account is debited when the retirement obligation is increased each year due to the passage of time?How much will be in the Asset Retirement Obligation account at the end of five years?(2) a. Give a few examples of liquidity ratios.b. Calculate Apples current ratio for 2018 and 2019.

Example of ARO Accounting Provisions To illustrate the accounting for AROs, assume that on January 1, 2020, Wildcat Oil Company erected an oil platform in the Gulf of Mexico. Wildcat is legally required to dismantle and remove the platform at the end of its useful life, estimated to be five years. Wildcat estimates that dismantling and removal will cost $1,000,000. Based on a 10 percent discount rate, the fair value of the asset retirement obligation is estimated to be $620,920 ($1,000,000 X.62092). Wildcat records this ARO as follows. January 1, 2020 Drilling Platform Asset Retirement Obligation 620,920 620,920 During the life of the asset, Wildcat allocates the asset retirement cost to expense. Using the straight-line method, Wildcat makes the following entries to record this expense. December 31, 2020, 2021, 2022, 2023, 2024 Depreciation Expense ($620,920 = 5) 124,184 Accumulated DepreciationPlant Assets 124,184 In addition, Wildcat must accrue interest expense each period. Wildcat records interest expense and the related increase in the asset retirement obligation on December 31, 2020, as follows. December 31, 2020 Interest (Accretion) Expense ($620,920 x.10) Asset Retirement Obligation 62,092 62,092 On January 10, 2025, Wildcat contracts with Rig Reclaimers, Inc. to dismantle the plat- form at a contract price of $995,000. Wildcat makes the following journal entry to record settlement of the ARO. January 10, 2025 Asset Retirement Obligation Gain on Settlement of ARO Cash 1,000,000 5,000 995,000