Ask Question, Ask an Expert

+61-413 786 465

info@mywordsolution.com

Ask Financial Accounting Expert

Asset Retirement Obligation, Changes in Estimate versus Errors, Writing an Issues Memo Facts: Mega¬Corp's corporate headquarters, built in 1970, has asbestos in its insulation. The Company's financial statements reflect a $5 million asset retirement obligation (ARO) for the eventual remediation of the asbestos. This ARO was initially estimated and recorded in 2005 when the company adopted FIN 47.

Accounting for Conditional Asset Retirement Obligations. (Note: Amounts recorded for AROs arc generally estimated, because it is not always pos- sible to know how much remediating asbestos-or other like issues-will ultimately cost.) MegaCorp is a public company with a calendar year-end.

While performing routine maintenance work on the facility, additional sampling identified the prose of asbestos in more places than the Company had documented during its initial estimate. The Company now believes the total cost to remediate the asbestos will be $9 million. The initial estimate (S5 million) was based on sampling around the plant for areas containing asbestos. The newly-discovered areas with asbestos were in a part of the facility that was not sampled.

Required: Assume that you are in the controller's group of MegaCorp and have been asked to prepare an account¬ing issues memorandum documenting your consideration of the following issues.

1. The Company's controller is questioning whether this liability for asbestos disposal is even necessary at all. He argues that asbestos must only be remediated if it is disturbed (such as through renovations), and points out that the company does not have any immediate plans to renovate the building. Respond to his question using authoritative guidance-is a liability even necessary, if the company's plans for disposal or renovation of this building are uncertain?

2. Determine whether the additional liability for the newly discovered asbestos is considered a change in accounting estimate or an error. Note that this is not a change in accounting principle. Support your answer using authoritative guidance.

3. Describe how the company should record this $4 million change (prospectively, or through a retrospective adjustment)? What accounts should be debited/credited? You can disregard use of present value for this example.

Financial Accounting, Accounting

  • Category:- Financial Accounting
  • Reference No.:- M93117455
  • Price:- $25

Priced at Now at $25, Verified Solution

Have any Question? 


Related Questions in Financial Accounting

Supply and demand graphto complete this assignment address

Supply and Demand Graph To complete this assignment, address the following requests: 1. Based on the information from the US Energy Information Administration, create the supply and demand graph in the space below. This ...

Assignment -part a -background saturn petcare australia and

Assignment - Part A - Background: Saturn Petcare Australia and New Zealand is Australia's largest manufacturer of pet care products. Saturn have been part of the Australian and New Zealand pet care landscape since openin ...

Assessment -part a -saturn petcare australia and new

Assessment - Part A - Saturn Petcare Australia and New Zealand is Australia's largest manufacturer of pet care products. Saturn have been part of the Australian and New Zealand pet care landscape since opening their firs ...

Consider the following account starting balances and

Consider the following account starting balances and transactions involving these accounts. Use T-accounts to record the starting balances and the offsetting entries for the transactions. The starting balance of Cash is ...

An investment offers 6800 per year with the first payment

An investment offers $6,800 per year, with the first payment occurring one year from now. The required return is 7 percent. a. What would the value be today if the payments occurred for 20 years?  b. What would the value ...

Listed below are selected account balances for pinnacle

Listed below are selected account balances for Pinnacle Corporation at December 31, Year 1 and Year 2.  Also available for you is selected information from the income statement for Pinnacle for the year ended December 31 ...

Asset retirement obligation changes in estimate versus

Asset Retirement Obligation, Changes in Estimate versus Errors, Writing an Issues Memo Facts: Mega¬Corp's corporate headquarters, built in 1970, has asbestos in its insulation. The Company's financial statements reflect ...

Corporate accounting assignment -assessment task -select

Corporate Accounting Assignment - Assessment task - Select two public limited companies listed on the Australian Securities Exchange (ASX) that are in the same industry. Go to the website of your selected companies. Then ...

Budgets and managerial responsibilitythis module explores

Budgets and Managerial Responsibility This module explores budgets and the benefits of creating budgets. In recent years, many organizations faced one of the hardest economic conditions with the recession. Many organizat ...

Scenario assume that a manufacturing company usually pays a

Scenario: Assume that a manufacturing company usually pays a waste company (by the pound to haul away manufacturing waste. Recently, a landfill gas company offered to buy a small portion of the waste for cash, saving the ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Why might a bank avoid the use of interest rate swaps even

Why might a bank avoid the use of interest rate swaps, even when the institution is exposed to significant interest rate

Describe the difference between zero coupon bonds and

Describe the difference between zero coupon bonds and coupon bonds. Under what conditions will a coupon bond sell at a p

Compute the present value of an annuity of 880 per year

Compute the present value of an annuity of $ 880 per year for 16 years, given a discount rate of 6 percent per annum. As

Compute the present value of an 1150 payment made in ten

Compute the present value of an $1,150 payment made in ten years when the discount rate is 12 percent. (Do not round int

Compute the present value of an annuity of 699 per year

Compute the present value of an annuity of $ 699 per year for 19 years, given a discount rate of 6 percent per annum. As