Coyote Co. is building a waste landfill in the desert between Arizona and California. Coyote estimates that this landfill will be in operation for five years, will cost $250 million to build, and will generate $800 million in revenues during its useful life. Federal law requires that Coyote decommission and decontaminate the site at the end of its useful life. A team of engineers has studied the decontamination procedure and has estimated that Coyote will have to spend $15 million on the decommissioning process when the landfill is shut down in five years. Coyote’s credit-adjusted rate of interest is 10%.

1. In accordance with GAAP, how should Coyote Co. account for the costs associated with the decommissioning process? Prepare the journal entry required and prepare an amortization table.
2. How are the costs associated with the decommissioning process reflected on the income statement? Explain how this accounting treatment improves the matching process.

  • CreatedSeptember 10, 2014
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