Grow It All Farms Ltd. is an agri-business that grows a variety of different grains on the land that it owns. Operations have been steadily expanding over the last few years. The company has now reached a point where it needs to create a reservoir for irrigation purposes. Management has applied to the municipality for permission to create the reservoir by creating a diversion from a creek that flows through land that the company owns.
The permit has been approved on the condition that Grow It All Farms restore the land and creek to its natural state when operations cease.

The company is required to provide the municipality with financial statements on an annual basis. Management agreed to the condition and has engaged an engineering firm to scope and price out the work. The cost to create the reservoir and divert the creek is $4,000,000.

The cost of the restoration is estimated to be $6,000,000 in 20 years. Grow It All Farms borrows at an average rate of 6% from its lenders.

Instructions:

a) Prepare the journal entries to set up the asset and the obligation imposed by the municipality?

b) Assume that the fiscal year end is a full?

Answer rating: 100% (QA)

a The journal entries to set up the asset and obligation imposed by the municipality are as follows ... View the full answer