KHL Industries Limited purchased a strip mine for cash on April 1, 2023 at a cost of $5,485,000. KHL expects to operate the mine fo
at which it is legally required to restore the surrounding area to its original state. It is estimated that it will cost $455,000 to do this
of the mine’s useful life. The company’s year-end is December 31, and KHL follows ASPE.
A) Prepare the journal entry to record the purchase of the mine and to record the asset retirement obligation for the mine on April
of 5%, the present value of the asset retirement obligation (i.e., its fair value) on the date of acquisition is $279,331.
Date Accounts Titles and Explanation Debit Credit
April 1 2023 Mineral Resources $ 5,764,331
Cash $5,485,000
Asset Retirement Obligation $ 279,331
B) Prepare any journal entries required for the mine (straight-line depreciation) and the asset retirement obligation at December 3
mine is zero.
Date Accounts Titles and Explanation Debit Credit
December 31 2023 Depreciation Expense $ 432,325
Accumulated Depreciation - Mineral Resources $ 432,325
(To record depletion for the year)
December 31 2023 Accretion Expense $ 10,475
Asset Retirement Obligation $ 10,475
(To record accretion expense for the year)
C) On April 1, 2033, KHL paid cash to an environmental firm to restore the mine’s surrounding area to its original state at a cost of
settlement of the asset retirement.
Date Accounts Titles and Explanation Debit Credit
April 1 2023 Asset Retirement Obligation $ 455,000
Loss on Settlement of ARO $ 14,000
, Cash $ 469,000
at which it is legally required to restore the surrounding area to its original state. It is estimated that it will cost $455,000 to do this
of the mine’s useful life. The company’s year-end is December 31, and KHL follows ASPE.
A) Prepare the journal entry to record the purchase of the mine and to record the asset retirement obligation for the mine on April
of 5%, the present value of the asset retirement obligation (i.e., its fair value) on the date of acquisition is $279,331.
Date Accounts Titles and Explanation Debit Credit
April 1 2023 Mineral Resources $ 5,764,331
Cash $5,485,000
Asset Retirement Obligation $ 279,331
B) Prepare any journal entries required for the mine (straight-line depreciation) and the asset retirement obligation at December 3
mine is zero.
Date Accounts Titles and Explanation Debit Credit
December 31 2023 Depreciation Expense $ 432,325
Accumulated Depreciation - Mineral Resources $ 432,325
(To record depletion for the year)
December 31 2023 Accretion Expense $ 10,475
Asset Retirement Obligation $ 10,475
(To record accretion expense for the year)
C) On April 1, 2033, KHL paid cash to an environmental firm to restore the mine’s surrounding area to its original state at a cost of
settlement of the asset retirement.
Date Accounts Titles and Explanation Debit Credit
April 1 2023 Asset Retirement Obligation $ 455,000
Loss on Settlement of ARO $ 14,000
, Cash $ 469,000
