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. At the time that construction was complete, the company estimated the oil rig would have a useful life of 20 years (with no salvage value) , after which Federal regulations would require that the oil rig be dismantled and the land area restored. The fair value of this asset retirement project was $815,000 and the present value of these asset retirement costs was $307,000 based on the 5% after-tax discount rate. At the end of the 20 year life, the company dismantles the oil rig and restores the land at a cost of $890,000. Following U.S. GAAP, the journal entry to record the completion of the restoration process would include:

A) credit Loss on Settlement of Asset Retirement Obligation for $583,000
B) debit Loss on Settlement of Asset Retirement Obligation for $75,000
C) credit Asset Retirement Obligation for $75,000
D) debit Loss on Settlement of Asset Retirement Obligation for $583,000