What Account Is Debited When the Liability Is Initially Capitalized

question 29

Multiple Choice

What account is debited when the liability is initially capitalized for an asset retirement obligation to dismantle an ocean oil rig?

• A) a retirement expense account
• B) an accretion expense account
• C) the oil rig asset account
• D) a separate quasi-asset account

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Definitions:

Foreign Exchange Gain

Profit from favourable changes in exchange rates affecting the value of currency positions.

Interest Expense

The cost incurred by an entity for borrowed funds over a period of time, often reported on the income statement.

Relevant Exchange Rates

The appropriate exchange rates used in the conversion of foreign currency transactions into the functional currency for reporting purposes.

Fixed Interest Rate

An interest rate on a liability, such as a loan or mortgage, that remains constant for either an agreed period of time or the entire term of the loan.