Answer:
B) $20,697.
Explanation:
For computing the accretion expense, first we have to determine the present value which is shown below:
Present value would be
= Annual cash flows × PVIF factor for five years at 10%
where,
Annual cash flows would be
= Probability × cash outflows + Probability × cash outflows + Probability × cash outflows
= 25% × $300,000 + 50% × $400,000 + 25% × $500,000
= $75,000 + $200,000 + $125,000
= $400,000
And, the PVIF would be 0.62092. Refer to the PVIF table
So, the present value would be
= $400,000 × 0.62092
= $248,368
Now the accretion expense would be
= $248,368 × 10% × 10 months ÷ 12 months
= $20,697
The 10 months are computed from March 1 to December 31 and we assume the books are closed on December 31
