What is the journal entry required to record the asset

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Problem 1: Xtra Processes is involved with innovative approaches to finding energy reserves. Xtra recently built a facility to extract natural gas at a cost of $10.5 million. However, Xtra is also legally responsible to remove the facility at the end of its useful life of twenty years. This cost is estimated to be $17 million (the present value of which is $5 million). What is the journal entry required to record the asset retirement obligation?

a. Debit Natural Gas Facility for $5,000,000 and credit Asset Retirement Obligation for $5,000,000
b. Debit Natural Gas Facility for $6,500,000 and credit Asset Retirement Obligation for $6,500,000
c. Debit Natural Gas Facility for $17,000,000 and credit Asset Retirement Obligation for $17,000,000
d. No Journal Entry Required

Reference no: EM132822316

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