On January 1, 2020, Brown Mining Enterprises purchased an existing coalmine. Brown expects to operate the mine
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Question:
On January 1, 2020, Brown Mining Enterprises purchased an existing coalmine. Brown expects to operate the mine for four years (i.e., until the end of 2023), after which it is legally required to dismantle the coalmine. Brown estimates that it will have to pay $500,000 to dismantle the mine and accomplish the other required asset retirement activities such as filling and restoring land etc. at the end of the mine’s life. The applicable general interest rate for Brown is 10% (considering its credit standing and the interest rates on its other borrowings).
1. Prepare the journal entry to record the asset retirement obligation on January 1, 2020.
2. Prepare journal entries for depreciation and interest expense on December 31, 2020.
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