Jackpot Mining Company operates a copper mine in central Montana. The company paid $1,300,000 in 2021 for the mining site and spent an additional $660,000 to prepare the mine for extraction of the copper. After the copper is extracted in approximately four years, the company is required to restore the land to its original condition, including repaving of roads and replacing a greenbelt. The company has provided the following three cash flow possibilities for the restoration costs: (FV of $1, PV of $1, EVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Cash Outflow $ 360,000 460,000 660,000 Probability 20% 45% 35% 2 3 To aid extraction, Jackpot purchased some new equipment on July 1, 2021, for $180,00O. After the copper is removed from this mine, the equipment will be sold. The credit-adjusted, risk-free rate of interest is 12%. Required: 1. Determine the cost of the copper mine. 2. Prepare the journal entries to record the acquisition costs of the mine and the purchase of equipment.
Jackpot Mining Company operates a copper mine in central Montana. The company paid $1,300,000 in 2021 for the mining site and spent an additional $660,000 to prepare the mine for extraction of the copper. After the copper is extracted in approximately four years, the company is required to restore the land to its original condition, including repaving of roads and replacing a greenbelt. The company has provided the following three cash flow possibilities for the restoration costs: (FV of $1, PV of $1, EVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Cash Outflow $ 360,000 460,000 660,000 Probability 20% 45% 35% 2 3 To aid extraction, Jackpot purchased some new equipment on July 1, 2021, for $180,00O. After the copper is removed from this mine, the equipment will be sold. The credit-adjusted, risk-free rate of interest is 12%. Required: 1. Determine the cost of the copper mine. 2. Prepare the journal entries to record the acquisition costs of the mine and the purchase of equipment.
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter11: Depreciation, Depletion, Impairment, And Disposal
Section: Chapter Questions
Problem 13P
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