The National Paper and Pulp Corporation logs timber and produces various paper products for the Canadian market. The company is publicly traded and has a December 31 year end. It uses straight-line depreciation and an 8% discount rate to determine fair value under a discounted cash flow method. The company’s year end is December 31, 2020. Part A On January 1, 2020, the company paid $10 million in cash for the rights to remove trees from a forest area in British Columbia. The rights permit the company to remove trees evenly over a 6-year period, with the requirement to replant at the end of the project. Replanting costs are estimated to be $3 million.

Required: 

Show all calculations and analysis to get full marks. Round all numbers to the nearest dollar.

a) Prepare the journal entries to be recorded on January 1, 2020. b) Prepare the journal entries to be recorded on December 31, 2020. c) Prepare a partial statement of financial position showing the amounts and accounts to be reported at December 31, 2020.

Part B [8.5 marks] In 2026, after fully restoring the land as required, the company was sued for $1 million for non- compliance with some of the aspects of the agreement. The lawyers estimate that it is likely the outcome will be unfavorable and expect their obligation to be $250,000 (25% likely), $500,000 (45% likely), or $700,000 (30% likely) should they lose the lawsuit. Required: Show all calculations and analysis to get full marks. 

a) Explain how this obligation should be reported on the 2026 financial statements. Support your answer using relevant guidance. 

b) State the amount of the obligation to be reported and explain your answer. 

c) Provide any note disclosure that is required.