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What is the book value of the asset retirement liability

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Question - Asset retirement obligation - Smithson Mining operates a silver mine in Nevada. Acquisition, exploration, and development costs totaled $6.8 million. After the silver is extracted in approximately five years, Smithson is obligated to restore the land to its original condition, including constructing a wildlife preserve. The company's controller has provided the following three cash flow possibilities for the restoration costs: (1) $620,000, 15% probability; (2) $670,000, 45% probability; and (3) $770,000, 40% probability. The company's credit-adjusted, risk-free rate of interest is 8%.

What is the book value of the asset retirement liability at the end of one year? Assuming that the actual restoration costs incurred after extraction is completed are $716,000, what amount of gain or loss will Smithson recognize on retirement of the liability?

Reference no: EM133180543

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