Your client, Hazelton Mining, recently entered into an agreement to obtain the rights to operate a coal
mine in West Virginia for $15 million. Hazelton incurred development costs of $6 million in preparing the
mine for extraction, which began on July 1, 2013. The contract requires Hazelton to restore the land and
surrounding area to its original condition after extraction is complete in three years.
The company controller, Alice Cushing, is not sure how to account for the restoration costs and has asked
your advice. Alice is aware of an accounting standard addressing this issue, but is not sure of its
provisions. She has narrowed down the possible cash outflows for the restoration costs to four
Alice also informs you that the company's credit-adjusted risk-free interest rate is 9%. Before responding
to Alice, you need to research the issue.
Obtain the relevant authoritative literature on accounting for asset retirement obligations using the
FASB's Codification Research System. You might gain access at the FASB website (
Explain the basic treatment of asset retirement obligations. What are the specific citations that you