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Royal Dutch Shell acquires rights to drill for oil in a certain location. It pays...

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Accounting

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Royal Dutch Shell acquires rights to drill for oil in a certain location. It pays $15 million for the rights, $3 million in legal fees, and $7 million for exploration costs, all on 1/1/2022. It also knows, at the time of the acquisition, that it must cap the oil wells and clean up the site after it has finished drilling for oil at the site. Management estimates the cost of capping and cleanup at $20 million, and estimates that it will have to pay this cost in 20 years' time. The appropriate creditadjusted risk free rate is 4%." The present value factor for 20 years at 4% is 0.4564. Make the acquisition entry on 1/1/2022 and the adjusting entry on 12/31/2022 for this transaction

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