Brief Exercise $10-5($Static$)$ Asset retirement obligation $[$L$010-1]$

Smithson Mining operates a silver mine in Nevada. Acquisition, exploration, and

development costs totaled $$5\mathrm{.}6$ million. After the silver is extracted in

approximately five years, Smithson is obligated to restore the land to its original

condition, including constructing a wildlife preserve. The company's controller

has provided the following three cash flow possibilities for the restoration costs:

$(1)$ $$500,000,20\%$ probability; $(2)$ $$550,000,45\%$ probability; and $(3)$ $$650,000,$

$35\%$ probability. The company's credit$-$adjusted, risk$-$free rate of interest is $6\%.$

What is the book value of the asset retirement liability at the end of one year?

Assuming that the actual restoration costs incurred after five years are

$$596,000,$ what amount of gain or loss will Smithson recognize on retirement of

the liability?

Note: Use appropriate factor$($s$)$ from the tables provided. Do not round

intermediate calculations. Enter your answers in dollars not in millions of

dollars. $($FV of $$1,$ PV of $$1,$ FVA of $$1,$ PVA of $$1,$ FVAD of $$1$ and PVAD of $$1)$