Reference no: EM132870201

Question - You have recently been hired as controller of Monnex Enterprises, a plastics manufacturing company. In addition to its manufacturing facility, the company operates an exploration site where it is has been successful in discovering oil that is used in its manufacturing division. The company also has a chain of stores that sell the plastic products. The previous controller left suddenly due to illness. Your first task is to prepare the liability section of the financial statements for the year ended December 31, 2020. Below are selected issues that you are working to resolve. Monnex Enterprises reports under international financial reporting standards (IFRS).

Monnex exploration site cost of $1,200,000 at the beginning of the year. The site will be operated for 10 years at which time Monnex must return it to its original state. It is estimated that this will cost $750,000 at the end of the site's useful life. Assume that Monnex uses private entity GAAP.

Required -

a. Prepare the journal entries for the acquisition of the site and the asset retirement obligation. The effective interest rate is 7%.

b. Prepare the journal entries for December 31, 2020.