Question

In: Accounting

Manufacturing Incorporated (

Manufacturing Incorporated (MI) purchased land on 1 January 20X2, which it started to operate as a gravel pit. The gravel pit will be operating for the next 20 years. At the end of the 20 years MI will be required to incur an estimated cost of $ 5 million to restore the land. This is required by government legislation. The interest rate that reflects the risks to MI is 8%.

Required:
1. Provide the journal entry for the restoration costs on 1 January 20X2.
2. Provide all required adjusting journal entries on 31 December 20X2.

Solutions

Expert Solution

Requirement 1

 

 

Land.................................................................................................. 1,072,750

Provision...........................................................................................                        1,072,750

$5,000,000 × (P/F, 8%, 20) = $5,000,000 × 0.21455 = $1,072,750

 

 

Requirement 2

 

 

20X2:

 

Depreciation expense - land ($1,072,750 / 20) .................................. 53,638

Accumulated depreciation - land.........................................................                        53,638

 

Interest expense ($1,072,750 x 8%)...................................................... 85,820

Provision...............................................................................................                          85,820

Provision...............................................................................................                          85,820

Raffay answered 2 years ago
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