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A company operates a mine. The company paid $1,800,000 in Year 1 for the mining site and spent an additional $760,000 to prepare the mine

A company operates a mine. The company paid $1,800,000 in Year 1 for the mining site and spent an additional $760,000 to prepare the mine for extraction. After the mineral is extracted in approximately four years, the company is required to restore the land to its original condition. The company has provided the following three cash flow possibilities for the restoration costs:

Cash Outflow Probability
1 $ 460,000 25%
2 560,000 40%
3 760,000 35%

To aid extraction, the company purchased some new equipment on July 1, Year 1, for $280,000. After the mineral is removed from this mine, the equipment will be sold. The credit-adjusted, risk-free rate of interest is 12%.

Required:

a. Determine the cost of the mine.

b. Prepare the journal entries to record the acquisition costs of the mine and the purchase of equipment.

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