text book: Intermediate accounting Vol1 Latest edition, Kim Lo and George Fisher

Energy drilled a natural gas well in northern Alberta and began producing from the well immediately. The company's geological engineers estimate that the well will be productive for 12

years. Environmental regulations require the company to restore the well site to its original state at the end of the well's useful life. Management estimates that it will cost$2.00

million to restore the site.Requirements

a. Compute the present value of the future site restoration costs at the beginning of the 12-year production life of the well. The appropriate discount rate is 6%.

(Round your final answer to the nearest whole dollar.)

b. Compute the annual depreciation expense related to the site restoration costs using the straight-line method.

c. Compute the amount of interest expense to be accrued on the obligation for site restoration for the first two years of the well's production life.

First year interest expense

Second year interest expens