Shell built an oil rig at a cost of $ million. The company estimates the oil rig will have a useful life of years with no salvage value after which Federal regulations require that the oil rig must be dismantiled and the land area restored at an expected fair value of $ million. The present value of these asset retirement costs is $ based on the aftertax discount rate. The company follows US GAAP.
a Prepare the joumal entry prepared at the completion of construction to value the oil rig.
b Prepare the journal entry to record the annual increase in the carrying value of the liability.
c At the end of years, the company dismantles the oil rig and restores the land area at a cost of $ million. Prepare the joumal entry to record payment of the settlement costs in cash.
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