The land was purchased for $450,000, and construction costs (including the installation ofconcrete lining and multiple ground water sampling wells) amounted to $2.3 million.On September 1, 2012, the municipality inspected the newly completed construction site, and issued ahazardous waste permit that allows CWML to operate the facility until August 31, 2032. The permitstipulates that CWML must properly cap the site, and restore the surface immediately following theoperating period so that it will be available and safe for alternate uses.CWML's engineers have agreed on the following estimates of the cost of complying with the permitstipulations (site restoration costs), under the assumption that the costs will be incurred in 2012:
• Materials (including clean fill and capping material): $225,000
• Labour: $125,000
• Other (equipment usage, hiring of specialized contractors, project management, water and soiltesting): $580,000Inflation can be assumed at 2%/year.
CWML's discount rate is 8%.CWML is a private company that follows ASPE, and has a December 31 year end.Required:2012You are an accountant working at CWML, and have been assigned as an accountant for the new facility.Your first task is to prepare a report for the CFO providing him with some proforma information for theupcoming few years.
(a) Determine the cost CWML expects to incur in remediating the facility immediately after it closes inAugust 2032.
(b) Prepare the journal entry to record the obligation CWML faces as stipulated in the operatingpermit.
(c) Prepare the 2012 and 2013 year-end journal entries related to the hazardous waste disposal site.CWML's depreciation policies require straight line amortization over the useful life of its assets. Thesite is expected to have no residual or salvage value.
(d) Prepare a partial balance sheet in good form for fiscal 2013, showing captions and related amountsfor the site and the related obligation.