Nickel Mines International Ltd purchases a bauxite deposit, the Fowl Bay Mine, at a cost of $200,000,000 on January 1, 2006 and began production immediately. The province requires mining companies to return the land to a natural state at the end of mining activity. Nickel Mines International Ltd estimates that it will operate the mine for 25 years, at which time it will cost $25,000,000 for the land reclamation project. Nickel Mines International Ltd uses an 8% discount rate and the effective interest method for recording expenses associated with the obligation.

Instructions

(a)Record any obligation for land reclamation as at January 1, 2006.

(b)Record any entries required related to this mine and the obligation as at December 31, 2006. Nickel uses straight line amortization and the estimated residual value of the mine is $500,000.