Question

25. Chemrite reported a total asset retirement obligation of 350,000 in last year's balance sheet. This year, Chemrite acquired a new chemical manufacturing facility subject to unconditional retirement obligations. Two measures of the obligation are the discounted cash flow estimate of 82,000 and the undiscounted cash flow estimate of 105 Accretion expense equaled 23,000. What amount should Chemrite report for the asset retirement obligation in this year's balance sheet? a. 350,000 b. 373,000 С. 455,000 d. 478,000

Answer 1

Ans: C:$455,000

The asset retirement obligation (ARO) is recorded at its fair value in the period in which it is incurred.

Subsequently, it is adjusted for revisions in estimates and the passage of time.

The beginning balance in the asset retirement obligation account is $350,000.

The fair value of the additional unconditional retirement obligations incurred during the year was $82,000 and increases the ARO.

The $23,000 accretion expense is the expense recognized on the ARO due to the passage of time and will increase the ARO.

($350,000 + $82,000 + $23,000 = $455,000)