Lu
Corp. erects and places into service an offshore oil platform on January 1,
2011, at a cost of $10 million. Lu is legally required to dismantle and remove
the platform at the end of its nine-year useful life. Lu estimates that it will
cost $1 million to dismantle and remove the platform at the end of its useful
life and that the discount rate to be used should be 8%. Prepare the entry to
record the asset retirement obligation.
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Off-Shore Platform......................
|
500,250
|
|
|
Asset
Retirement Obligation........
|
|
500,250
|
|
($1,000,000 X .50025)
|
|
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Using a financial
calculator:
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|||
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PV
|
?
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Yields
$ 500,249.97
|
|
|
I
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8%
|
|
|
|
N
|
9
|
|
|
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PMT
|
0
|
|
|
|
FV
|
$
(1,000,000)
|
|
|
|
Type
|
0
|
|
|
