Really Fast Computers Accounting Case Study Assignment (Case Study Sample)

Really Fast Computers: Accounting Case Study
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Question ONE:
RFC should recognize the liability relating to its disposal agreement with county landfill for the bi-annual disposal costs of its acid washing mixture at $1,060,000 (as at the end 31st December 2017)
Workings
Decommissioning cost
0.06 x 1000,000 + 1000, 000
=$1, 060, 000
Journal entries
1 Acid Washing System $1000,000
Interest expense$60,000
Asset Retirement Obligation$1060, 000
(To recognize the decommissioning cost of the Acid Washing System)
2 Interest expense$60,000
Asset Retirement Obligation $60, 000
(To record the accrued interest on the Asset Retirement Cost)
Question TWO:
As at December 31st 2017, RFC should recognize the liability related to the disposal of the entire system at the present value amount of $9,999,998.
Working 1
10,000,000 x (1+0.006)10
Expected expenditure in 10 years= 17, 908, 477
Present Value of the expected expenditure 17, 908, 477 (1+0.006)10
Present Valueestimate=$9,999,998
Working 2
Interest expense by 31st December, 2017
9, 999, 998 x 0.06=599,998
Extending the life of the mixture would result in high interest expense and depreciation cost. The high interest expense would, thus inflate the decommissioning cost making future waste disposal very expensive.
Journal entries
1 Acid Washing System $9,400,000
Interest expense$599,998
Asset Retirement Obligation$9, 999, 998
(To record asset retirement obligation for potential state hazardous disposal.
2 Interest expense$599,998
Asset Retirement Obligation $599,998
(To record the accrued interest on the Decommissioning cost for the 1st year)
Question THREE:
The 20%, 30%, and 50% waste disposal probability association estimates to indefinite life, 20-year and 10-year waste disposal are not reasonable. They are based on mere hypothesis, hence, would not impact on the determination of whether or not liability exists as at 31st December 2017.
Therefore, as at 31 December 2017, the amount of liability recognized is $9,999,998, which is inclusive of the applicable interest expense.
Journal Entries
1 Acid Washing System $9,400,000
Interest expense$599,998
Asset Retirement Obligation$9, 999, 998
(To record asset retirement obligation for potential state hazardous disposal.
2 Interest expense$599,998
Asset Retirement Obligation $599,998
(To record the accrued interest on the Decommissioning cost for the 1st year)
Question FOUR:
Adjustments for liability (9, 999, 998 + 1060, 000) =$11,059,998
Reported Total debt$17, 590,000
Add: Adjustments (Asset Retirement obligation)$11,059,998 Adjusted Total Debt$28,649,998