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Prepare the journal entry to record the purchase

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Question - Dogan Industries Limited purchased a strip mine for cash on April 1, 2020 at a cost of $5,949,000. Dogan expects to operate the mine for 9 years, at which it is legally required to restore the surrounding area to its original state. It is estimated that it will cost $508,000 to do it at the end of the mine's useful life. The company's year-end is December 31, and Dogan follows ASPE. Based on the effective interest rate of 5.2%.

Required -

1. Prepare the journal entry to record the purchase of the mine and to record the asset retirement obligation for the mine on April 1, 2020.

2. Prepare journal entries required for the mine (straight-line depreciation) and the asset retirement obligation at December 31, 2020.

3. On April 1, 2030, Dogan paid cash to an environmental firm to restore the mine's surrounding area to its original state at a cost of $518,000. Prepare the journal entry for the settlement of the asset retirement.

Reference no: EM132848637

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