Chapter 13, Problem 13.6E

Asset Retirement Obligation. On January 1, Evergreen Utilities Company acquired a power plant at a total cost of $23,500,000 and paid cash. The estimated cost to dismantle the plant and restore the property at the end of the plant's 20-year life is $4,850,000. Evergreen’s cost of capital is 8% Evergreen will depreciate the asset over its useful life using the straight-line method The asset has no residual value.

Required

1. a. Prepare the journal entries required to record the acquisition of the plant asset.
2. b. Prepare the journal entry to record the first year's depreciation and accretion accrual.
3. c. Prepare the journal entries required to record the disposal of the asset and the settlement of the asset retirement obligation at the end of the fifth year after acquisition Evergreen sold the asset for $17,000,000, and the costs of dismantling the plant and restoring the property totaled $5,400,000.