Section 4: Report with calculations.

Scenario: River Spray Company was organized to grow cranberries. They entered into an agreement with a landowner to lease 125 acres to develop a cranberry bog. The agreement states that River Spray will be obligated to transform the land back to its original condition at the end of the 5-year agreement. Prior to receiving the permit, River Spray submitted a legally binding plan that included a timetable for the full reclamation process. After the end of 5 years, River Spray will restore the land to its original condition.

River Spray has made the following estimates:

• Labor costs to drain the bog are presently $22 hour but could increase anywhere between 7 and 14%.
• The labor hours associated with draining the bog are approximately 10 to 15 hours per acre.
• Labor costs to backfill the soil removed are estimated at 25 to 30 hours per acre.
• The acreage will have to be reseeded, which will cost approximately $800 an acre.
• Native tree seedlings will have to be planted at a cost of $20,000 and labor of $1,500 per acre.
• An additional $200,000 to $300,000 is estimated for damages caused by air and water pollution.
• Wildlife will also have to be restored at a cost of $150,000.
• Overhead costs should be approximately 70% of total labor.
• The risk-free rate is presently 2%.
• Inflation is estimated to be approximately 2%.

Read the River Spray Company (RSC) scenario. Using the PDF Financial Reporting Developments: Asset Retirement Obligations (pages A1-A6) as a source, in full detail/elaborate, report

• State the amount RSC should recognize related to this asset retirement obligation.
• Include an Excel schedule and calculations as presented in the Asset Retirement Obligations article.