A company purchased a power plant on December 31, 2020, for $7,800,000. The power plant is expected to be used for the next 20 years. At the end of its useful life, the power plant will have to be decommissioned at an expected cost of $1,850,000. The company uses the straight-line method of depreciation with a salvage value of $250,000. The relevant discount rate is 6%.

Required:

1. Prepare all journal entries for the years ended December 31, 2020, and 2021.

2. During 2039, advances in technology cause the estimate of the ARO to be revised to $800,000, it is now also expected that the asset will now have an additional 4 years of use. Prepare the journal entry to reflect the change in estimate.

Answer rating: 100% (QA)

1 Present value of future decomissioning cost at 6 discoun... View the full answer