Dineshbhai Brief Exercise 10-5 (Static) Asset retirement obligation [LO10-1]Smithson Mining operates a silver mine in Nevada. Acquisition, exploration, anddevelopment costs totaled $5.6 million. After the silver is extracted inapproximately five years, Smithson is obligated to restore the land to its originalcondition, including constructing a wildlife preserve. The company's controllerhas provided the following three cash flow possibilities for the restoration costs:(1) $500,000, 20% probability; (2) $550,000, 45% probability; and (3) $650,000,35% probability. The company's credit-adjusted, risk-free rate of interest is 6%.What is the book value of the asset retirement liability at the end of one year?Assuming that the actual restoration costs incurred after five years are$596,000, what amount of gain or loss will Smithson recognize on retirement ofthe liability?Note: Use appropriate factor(s) from the tables provided. Do not roundintermediate calculations. Enter your answers in dollars not in millions ofdollars. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)Liability

Asset Retirement Liability (ARL) is a liability associated with the retirement of an asset at the…

What is the book value of the asset retirement liability at the end of one year? Assuming that the actual restoration costs incurred after five years are $596,000, what amount of gain or loss will Smithson recognize on retirement of the liability? Note: Use appropriate factor(s) from the tables provided. Do not round intermediate calculations. Enter your answers in dollars not in millions of dollars. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Liability

What is the book value of the asset retirement liability at the end of one year? Assuming that the actual restoration costs incurred after five years are $596,000, what amount of gain or loss will Smithson recognize on retirement of the liability? Note: Use appropriate factor(s) from the tables provided. Do not round intermediate calculations. Enter your answers in dollars not in millions of dollars. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Liability

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter7: Operating Assets

Section: Chapter Questions

Problem 43E

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Brief Exercise 10-5 (Algo) Asset retirement obligation [LO10-1] Smithson Mining operates a silver mine in Nevada. Acquisition, exploration, and development costs totaled $6.1 million. After the silver is extracted in approximately five years, Smithson is obligated to restore the land to its original condition, including constructing a wildlife preserve. The company's controller has provided the following three cash flow possibilities for the restoration costs: (1) $550,000, 10% probability; (2) $600,000, 50% probability; and (3) $700,000, 40% probability. The company's credit-adjusted, risk-free rate of interest is 5%. What is the book value of the asset retirement liability at the end of one year? Assuming that the actual restoration costs incurred after five years are $646,000, what amount of gain or loss will Smithson recognize on retirement of the liability? Note: Use appropriate factor(s) from the tables provided. Do not round intermediate calculations. Enter your answers in…
Problem 28-3 (IAA) On January 1,2020 Universal Company paid P5,400,000 for property containing natural resource of 2,000,000 tons of ore. The estimated discounted amount of restoring the land after the resource is exhausted is P450,000 and the land will have a value of P650,000 after it is restored for suitable use. Tunnels, bunk houses and other fixed installations are constructed in the amount of P8,000,000. Such expenditures are to be charged to mine improvements. Operations began on January 1,2021 and resources removed totaled 600,000 tons. During 2022, a discovery was made indicating that available resources after 2022 will total 1,875,000 tons. At the beginning of 2022, additional bunk houses were constructed in the amount of P770,000. In 2022, only 400,000 tons were mined because of a strike.
Problem 28-3 (IAA) On January 1,2020 Universal Company paid P5,400,000 for property containing natural resource of 2,000,000 tons of ore. The estimated discounted amount of restoring the land after the resource is exhausted is P450,000 and the land will have a value of P650,000 after it is restored for suitable use. Tunnels, bunk houses and other fixed installations are constructed in the amount of P8,000,000. Such expenditures are to be charged to mine improvements. Operations began on January 1,2021 and resources removed totaled 600,000 tons. During 2022, a discovery was made indicating that available resources after 2022 will total 1,875,000 tons. At the beginning of 2022, additional bunk houses were constructed in the amount of P770,000. In 2022, only 400,000 tons were mined because of a strike. Compute the Carrying Amount of Wasting Asset on December 31, 2020. Compute the Depletion on December 31, 2021 Compute the Depreciation on December 31, 2021 Compute the Carrying Amount…
Problem J: On January 1, 2021, the Reddick Company purchased a mining right for P30,000,000. The mine's recoverable ore reserves are estimated to be 4,000,000 tons. Following the extraction of all ore, the company will be obligated by law to return the land to its original state. The present value of the restoration cost is P2,000,000. The company estimated that the property may be sold for P5,000,000. At a cost of P6,000,000, roads were built and other development costs were invested to aid in the extraction and transportation of the mined ore in early 2021. 200,000 tons of ore were extracted and sold in 2021. A new study conducted by a new mining engineer on December 31, 2022, revealed that 5,000,000 tons of ore were available for mining. 225,000 tons of ore were mined and sold in 2022. How much depletion expense should be recognized in 2022?
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A mining project requires the purchase of new drilling equipment at a cost of $69750. A further $36000 will be spent on transport, installation and initial maintenance of the equipment, at the very beginning of the project. Of this amount, 35% constitutes maintenance costs and will be written off in Year 1, and the remainder will be capitalised. What is the value of the equipment for depreciation purposes? Question 4Answer a. $82350 b. $93150 c. $105750 d. $69750
Problem A-19 (Algo) Compute Net Present Value Dungan Corporation is evaluating a proposal to purchase a new drill press to replace a less efficient machine presently in use. The cost of the new equipment at time 0, including delivery and installation, is $260,000. If it is purchased, Dungan will incur costs of $7,400 to remove the present equipment and revamp its facilities. This $7,400 is tax deductible at time 0. Depreciation for tax purposes will be allowed as follows: year 1, $64,000; year 2, $94,000; and in each of years 3 through 5, $54,000 per year. The existing equipment has a book and tax value of $124,000 and a remaining useful life of 10 years. However, the existing equipment can be sold for only $64,000 and is being depreciated for book and tax purposes using the straight-line method over its actual life. Management has provided you with the following comparative manufacturing cost data. Present Equipment New Equipment Annual capacity (units) 424,000…
A telecommunications company contracted for the installation of a fiber optic cable linking two major cities will cost of $960M. This amount includes freight and installation charges estimated at 10% of the above contract price. If the cable shall be depreciated over a period of 15 years with zero salvage value, what is the depreciation charge during the 8th year using the SOYD method? A. $41.28M B. $86M C. NOTA D. $64M
Print Item 24 Schefter Mining operates a copper mine in Wyoming. Acquisition, exploration, and development costs totaled $7.3 million. Extraction activities began on July 1, 2021. After the copper is extracted in approximately six years, Schefter is obligated to restore the land to its original condition, including constructing a park. The company’s controller has provided the following three cash flow possibilities for the restoration costs: Cash Flow Probability 1. $ 610,000 25 % 2. 710,000 25 % 3. 810,000 50 % The company’s credit-adjusted, risk-free rate of interest is 6%, and its fiscal year ends on December 31. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided. Round other intermediate calculations to the nearest whole dollar. Enter your answers in whole dollars.) Required:1. What is the initial cost of the copper mine?2. How much accretion expense will…
Required information [The following information applies to the questions displayed below.] Montego Production Company is considering an investment in new machinery for its factory. Various information about the proposed investment follows: Initial investment Useful life $ 860,000 6 years Salvage value Annual net income generated Montego's cost of capital Assume straight line depreciation method is used. Help Montego evaluate this project by calculating each of the following: Net Present Value $ 20,000 $ 66,000 11% Required: 3. Net present value. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) Note: Use appropriate factor(s) from the tables provided. Negative amount should be indicated by a minus sign. Round the final answer to nearest whole dollar.
Underwoods Miners recently purchased the rights to a diamond mine. It is estimated that there are two million tons of ore within the mine. Underwoods paid $46,000,000 for the rights and expects to harvest the ore over the next fifteen years. The following is the expected extraction for the next five years. Year 1: 50,000 tons Year 2: 900,000 tons Year 3: 400,000 tons Year 4: 210,000 tons Year 5: 150,000 tons Calculate the depletion expense for the next five years and create the journal entry for year one.