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On January 1, 2020 Kaline Shipping Co. purchases an oil tanker depot for $2,000,000. Kaline...

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Accounting

On January 1, 2020 Kaline Shipping Co. purchases an oil tanker depot for $2,000,000. Kaline expects to operate the depot for ten years. At the end of that period, Kaline is legally required to dismantle the depot and remove the underground storage tanks. Kaline estimates the cost to dismantle the depot and remove the tanks in ten years will be $700,000. The present value of this obligation, discounted at an appropriate interest rate of 5% is $429,737. What expense should Kaline record at December 31, 2020 as a result of these events?

Depreciation expense of $242,974 and interest expense of $21,487

Depreciation expense of $200,000 and interest expense of $21,487

Depreciation expense of $200,000 and interest expense of $35,000

Depreciation expense of $200,000

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