Lifeline Biofuels Built an Oil Rig at a Cost of $10.5

Lifeline Biofuels built an oil rig at a cost of $10.5 million. The company estimates the oil rig will have a useful life of 20 years (with no salvage value) , after which Federal regulations require that the oil rig must be dismantled and the land area restored. The fair value of the costs of this asset retirement project is $900,000. The present value of these asset retirement costs is $280,000 based on the 6% after-tax discount rate. Under U.S. GAAP, what is the initial capitalized carrying value of the oil rig at the completion of construction?

A) $10,500,000
B) $10,220,000
C) $10,780,000
D) $630,000