On January 1, 2016, Barbosa Company purchased a coal mining sitefor $1,000,000. Under the terms of the purchase agreement, Barbosamust restore the site to specified conditions at an estimated costof $125,000. Barbosa estimates that it will be able to operate thesite for 20 years. Barbosa uses a 6% discount rate and astraight-line method of depreciation. Required: 1. Prepare thejournal entry necessary to record the purchase of the coal miningsite. 2. Prepare any journal entries needed at December 31 withregard to this mining site. 3. Next Level What is the conceptualjustification that underlies the accounting for an asset retirementobligation?
