Lifeline Biofuels Built an Oil Rig at a Cost of $4.5

Multiple Choice

Lifeline Biofuels built an oil rig at a cost of $4.5 million that it places into service on the first day of the current year. The company estimates the oil rig will have a useful life of 20 years (with no salvage value) , after which Federal regulations require that the oil rig must be dismantled and the land area restored. The expected fair value of this asset retirement project is $845,000. The present value of these asset retirement costs is $126,000 based on the 10% after-tax discount rate. Under U.S. GAAP, what is the company's accretion expense for the first year?

A) $12,600
B) $42,250
C) $6,300
D) $0