Question
Swifty Processes is involved with innovative approaches to finding energy reserves. Swifty recently built a facility to extract natural gas at a cost of $12.5
Swifty Processes is involved with innovative approaches to finding energy reserves. Swifty recently built a facility to extract natural gas at a cost of $12.5 million. However, Swifty is also legally responsible to remove the facility at the end of its useful life of twenty years. This cost is estimated to be $18 million (the present value of which is $6.9 million). What is the journal entry required to record the asset retirement obligation?
a. Debit Natural Gas Facility for $6900000 and credit Asset Retirement Obligation for $6900000.
b. No journal entry required.
c. Debit Natural Gas Facility for $18000000 and credit Asset Retirement Obligation for $18000000.
d. Debit Natural Gas Facility for $5500000 and credit Asset Retirement Obligation for $5500000.
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