Potential reforestation costs

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Reference no: EM13825220

ABC Company enters into a lease on a tract of timberland. The lease is for 10 years and allows ABC to harvest timber from the tract for that period of time. A clause in the lease allows the lessor to require ABC to reforest the land prior to the end of the lease. Based on past lease agreements with this lessor, ABC feels it is unlikely the lessor will exercise the reforestation clause. They feel the probability is at most a 25% chance they will have to reforest the land at the end of the lease. Because of this, ABC feels that no accounting is necessary for the potential reforestation costs. Do you agree? Why or why not? Cite the appropriate codification source as justification for your answer.

Reference no: EM13825220

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