Lifeline Biofuels Built an Oil Rig at a Cost of $4.5

question 4

Multiple Choice

Lifeline Biofuels built an oil rig at a cost of $4.5 million. At the time that construction was complete, the company estimated the oil rig would have a useful life of 20 years (with no salvage value) , after which Federal regulations would require that the oil rig be dismantled and the land area restored. The fair value of this asset retirement project was $815,000 and the present value of these asset retirement costs was $307,000 based on the 5% after-tax discount rate. At the end of the 20 year life, the company dismantles the oil rig and restores the land at a cost of $890,000. Following U.S. GAAP, the journal entry to record the completion of the restoration process would include:

• A) credit Loss on Settlement of Asset Retirement Obligation for $583,000
• B) debit Loss on Settlement of Asset Retirement Obligation for $75,000
• C) credit Asset Retirement Obligation for $75,000
• D) debit Loss on Settlement of Asset Retirement Obligation for $583,000

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Definitions:

Treaty of Maastricht

An agreement signed in 1992 that led to the creation of the European Union (EU) and established its foundational economic and political structures.

National Front

A political party or movement in various countries, often characterized by its nationalist, xenophobic, or far-right ideologies.

Algerian War

A conflict between France and the Algerian National Liberation Front from 1954 to 1962, leading to Algeria gaining its independence from France.

Common Currency

A common currency refers to a monetary system in which multiple countries or territories use the same currency, facilitating trade and economic policy coordination.