A firm acquired a $4.5 million gold mine that is expected to yield 500,000 ounces of gold. During each of the first two years, 100,000 ounces of gold are mined and sold.

Required

a. Show the effects on the balance sheet equation from the mine acquisition and depletion for each of these two years.

b. Discuss the impact on the income statement and balance sheet at acquisition and at the end of each year.

c. What would the depletion be during each of the first two years if the firm estimated it would cost $200,000 to clean up the mine at the end of its productive life? (Note that the mine has a negative residual value.)

d. Assume that the mine is sold for $5 million at the end of the second year.

Show the effects on the firm’s income statement and the balance sheet.

e. Assume that the mine is fully exhausted and declared worthless at the end of the third year. Show the effects on the firm’s income statement and the balance sheet.