QUESTIONS 45 THROUGH 68 RELATE TO FINANCIAL STATEMENT ANALYSIS

57. Assume U.S. GAAP (generally accepted accounting principles) applies unless

otherwise noted.

A company acquires a manufacturing facility in which it will produce toxic

chemicals. The cost of the facility (exclusive of the underlying land) is $25

million and it is expected to provide a 10-year useful life, after which time the

company will demolish the building and restore the underlying land. The cost of

this restoration and cleanup is estimated to be $3 million at that time. The facility

will be amortized on a straight-line basis. The company’s discount rate associated

with this obligation is 6.25 percent. The total expense that will be recorded in the

first year associated with the asset retirement obligation on this property is closest

to:

A. $163,618.

B. $224,945.

C. $265,879.