Buchaneer Co.,a waste collection company,estimates that its landfill will be in operation for five years and will cost $300 million to build,with generation of $900 million in revenues during its useful life.According to Federal Law,Buchaneer must decommission and decontaminate the site at the end of its useful life.Based on estimates by its engineers,Buchaneer will have to spend $20 million on this process when the landfill is finally shut down in five years.Buchaneer's credit adjusted rate of interest is 10%.(Hint: Use PV factors to estimate fair value of this ARO.)
Required:1.In accounting for asset retirement obligations,how should Buchaneer account for the costs associated with this decommisioning process according to U.S.GAAP? Show journal entries and prepare an amortization table.
2.How should these costs be reported on the income statement and how does this treatment improve the matching process?

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The Answer of Buchaneer Co.,a waste collection company,estimates that its landfill will be in operation for five years and will cost $300 million to build,with generation of $900 million in revenues during its useful life.According to Federal Law,Buchaneer must decommission and decontaminate the site at the end of its useful life.Based on estimates by its engineers,Buchaneer will have to spend $20 million on this process when the landfill is finally shut down in five years.Buchaneer's credit adjusted rate of interest is 10%.(Hint: Use PV factors to estimate fair value of this ARO.)
Required:1.In accounting for asset retirement obligations,how should Buchaneer account for the costs associated with this decommisioning process according to U.S.GAAP? Show journal entries and prepare an amortization table.
2.How should these costs be reported on the income statement and how does this treatment improve the matching process?